Value added risk management in a complex organisation from principle to application
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Value added risk management in a complex organisation – from principle to application. Kadita Tshibaka Divisional Risk Officer, Wholesale & International Banking, Lloyds TSB Tim Cooke Director, Portfolio Management, Wholesale & international Banking, Lloyds TSB November 2006.

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Value added risk management in a complex organisation from principle to application

Value added risk management in a complex organisation – from principle to application

Kadita Tshibaka

Divisional Risk Officer, Wholesale & International Banking, Lloyds TSB

Tim Cooke

Director, Portfolio Management, Wholesale & international Banking, Lloyds TSB

November 2006


Breakdown of risk management
Breakdown of Risk Management

RUSSIA

ASIA

ARGENTINA


  • You have heard it said that there shall be no surprises from your business.

  • And I say unto you…

    “Surprises there shall be”

  • You have heard it said that losses will not be tolerated.

  • And I say unto you…

    “Losses you shall have”

  • We must not forget the lessons learned out of crises in Asia (1997), Russia (1998), Argentina (2001/2002), and individual OECD corporates in the recent past…



Role of risk
Role of Risk or losses, but what quantum, and where that sits in relation to our predefined appetite, loss absorption capacity and, how we respond.

  • The key objective, and the cornerstone of everything Risk must do, is to support the business in safely and compliantly achieving all key strategic goals, including sustainable and predictable growth in financial performance and the right balance between risk and reward.

  • To reduce earnings volatility through: upfront determination of our risk appetite (concentrations); maintenance of an alert “steady as you go” management of risk; and timely problem recognition and remedial action.

  • Risk must be an enabler – not a blocker; a gate opener and not simply a gate keeper.


Strategy or losses, but what quantum, and where that sits in relation to our predefined appetite, loss absorption capacity and, how we respond.

Target Market & Product Offering

Conceptual Framework View of Risk Management

Periodic

Review

Remedial Mgt /

Risk Mitigation

Actions

Risk & Control

Self Assessment process /

Internal Audit

Problem Recognition

Problem Anticipation

Portfolio Mgt /

Risk Appetite /

Policies

Fit for purpose

IT / Systems

Infrastructure

Training &

People Mgt.

Legal & Regulatory Risk (Compliance, Operational Risk, Basel/MiFID,

Reputational Risk…)

Due Diligence

(Risk differentiated,

cost effective…)

Counterparty Credit, Market & Liquidity Risk Mgt


Effective efficient and flexible risk management that is compliant with regulatory requirements
Effective, efficient and flexible risk management that is compliant with regulatory requirements

Overall criteria for risk management

Ambition

  • Increased effectiveness with customers

    • More time with customers

    • Increased transaction flow

  • Speed of response in a consistent and safe manner for both internal and external customers

  • Effort differentiated by level of risk

  • Held / reduced cost in organisation

  • Increased agility; harmonised risk processes

  • Efficiently meeting all the required legal and regulatory requirements

  • Risk approval authority as close to the front line as possible

  • Sufficient risk management support to help the business deliver its goals

    • Ability to satisfy risk appetite

    • Earnings stability

Effectiveness

Develop an actionable approach to risk management that is both effective and efficient

Efficiency

Flexibility


  • Trust and Integrity are of paramount importance in the Risk Management profession. Base this in firm principles:

    • call it as you see it;

    • do what is right regardless of the consequences;

    • be able to look at yourself in the mirror and be happy with what you see.

  • Clarity of roles, responsibilities and accountabilities is critical but not immovable in support of a dynamic business.

  • Risk must be responsive, value adding.

  • Respond in a consistent manner but not over-engineering with respect to heavy demands of our regulatory environment.

  • Be aware of the need for Risk Management not to become overly bureaucratic and an unhelpful hindrance.

  • Balance between short and long term objectives in efforts to meet financial targets. Short term pressures can lead to wrong behaviours.


  • Reputational risk - harmful effects of greed (either individual or in a collective).

  • Recognise and control emerging risks early – e.g. macro/regulatory/competitive.

  • Do not be afraid of change. Learn to manage and control risks in a changing environment:

    • Strive for Risk management to lead the change and be actively engaged in strategy formulation;

    • Do not underestimate the difference an anticipatory, proactive Risk Management posture can make for a bank;

    • Vigilance during organisational change. For a lot of our firms, change is a constant.

  • The importance of human capital:

    • The coaching / training and development of staff;

    • Judgement remains vitally important – do not over-rely on models and tools.


A final thought
A final thought individual or in a collective).

Often undervalued, Risk management must be seen as a full business partner. So…

…is it too much to ask for equitable treatment in the way we compensate Risk people ?


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