Risk Management – A Current Problem for Banks
Risk (mis)management is at the core of the recent turmoil in the financial markets. These issues started with US regulators seizing Silicon Valley Bank (SVB). According to Michael Barr, Fed official and US top banking regulator, “SVB’s failure is a textbook case of mismanagement.” (1)
Similarly, Mark T. Williams, former bank examiner at the Fed, considers SVB “a colossal failure in asset-liability risk management.” (2)
This is not a new issue. Indeed, there have been globally coordinated efforts to improve risk management in banking for over a decade.
Global Risk Management Efforts
Basel Committee on Banking Stability (BCBS) concluded: “One of the most significant lessons learned from the global financial crisis that began in 2007 was the banks’ information technology (IT) and data architectures were inadequate to support the broad management of financial risks.” (3)
BCBS 239 provides principles for effective risk data aggregation and risk reporting, which are organized into the following areas:
- Overarching governance and infrastructure.
- Risk data aggregation capabilities.
- Risk reporting practices.
- Supervisory review, tools, and cooperation.
Cocolevio Supports the Client’s Risk Management Efforts
As a modern IT company, Cocolevio can assist banks and regulators in implementing tasks associated with the referred principles. In fact, Cocolevio has been providing consulting services to a US financial institution with a global footprint to improve its regulatory reporting capabilities and practices.
The client’s business problem involves filing tens of regulatory reports, which require access to proprietary information currently scattered across the organization, including several information portals, information retrieval tools, and teams or stakeholders with different privileges. In addition, these information lakes do not include relevant public information such as that provided by regulators.
Cocolevio’s Proposed Solution
Our proposed solution involves data management, operating model optimization, and an IT application. We proposed the creation of a centralized repository of proprietary and publicly available relevant information, creating an application to retrieve specific information in an automated and user-friendly manner, assigning entitlements based on user profile, and a notification system based on user profile, among others.
Next, we offered the client a web-based application or one based on an off-shelf product like Tableau or Power BI. Finally, we suggested that the client store the repository and the app on the cloud or in its local environment.
By creating a centralized repository of proprietary risk management information/data from different functional teams and complementing it with relevant public information, say from regulators, Cocolevio’s solution is helping the client to improve the completeness, accuracy, and integrity of risk data. We also include comprehensive and accurate reports on overall risk management in the banking industry.
The IT application both automates manual tasks and increases the capabilities to perform new use cases. By replacing manual tasks, it makes risk data aggregation more flexible and adaptable while also increasing the accuracy of risk data aggregation and risk management reports. Entitlements and notification systems based on user profiles protect risk data while facilitating a timely and targeted distribution of risk data and risk management reports to relevant stakeholders.
Cocolevio’s solution—our consulting services more broadly—is not limited to IT and data management for regulatory reports. It can also cover any management report, say, those aimed at improving strategic and tactical decisions to promote an organization’s growth or those assessing its financial state. It is worth noting that banks’ efforts to comply with risk management regulations cover data and information that is also useful for other management purposes. Cocolevio can assist banks that do not fully exploit their risk management information.