3 Important Risk Management Changes for Mid-Sized Banks

Banks are leading the charge in helping the economy reopen across the country. Banks are providing the financial support and services that businesses need to survive in these challenging times. Most federal and local government programs that support businesses are also being run through banks. As banks deal with the aftereffects of an unprecedented economic shutdown, they are also creating plans to help with the reopening of the economy. It will be important to make some changes to ensure that risks can be managed efficiently during these uncertain times.

There are three major changes which banks need to incorporate into their risk management frameworks. The larger banks with a presence across the country have already made many of these changes because they had access to the technology that will enable them to quickly make the required changes. By improving the way bank can detect and assess risks, determine the risk appetite, and implement technology, smaller banks can reap huge benefits by getting more information about risks.

The 3 most important changes smaller banks need to make are:

• Mapping Risks, KRI and Controls to Provide Real-Time Insight for Risk Mitigation
• Dynamic Risk Appetite Statement
• Advanced Technologies to Predict Growth Opportunities

Risk Mapping

Banks need to proactively manage risks; however, it can be difficult to manage them proactively when assessing the impact of risks takes so much time. A bank must first assess the risks, then it must determine how the risk affects the many different product lines and departments of the bank, and then assess how efficiently internal controls will be able to mitigate the risks. Manually handling all these processes means that banks can only be reactive.

Risk mapping can enable banks to see the effects of emerging risks on their departments and product lines in real-time. The idea behind risk mapping is elegant in its simplicity. Instead of simply assessing all risks, the bank also creates a relationship network between the risks and the internal bank processes, policies, documents, and more. This is immensely helpful because as the severity of a risk changes, the system can now automatically highlight the domains of the bank which will be affected by the changes in risk levels.

This enables banks to proactively mitigate risks. Instead of spending multiple days simply assessing the impact of the risks, the bankers can immediately start mitigation activities. The automation of control testing is a crucial part of this process because it can highlight any controls that will not be able to withstand the change in risk levels.

Dynamic Risk Appetite Statement

The data from risk mapping can then be used to inform a dynamic risk appetite statement. With a live, rather than static, risk appetite statement, risk officers can quickly evaluate the bank’s current risk appetite and adjust thresholds on demand to monitor risks in real-world business scenarios. A dynamic risk appetite statement can be used for two purposes: to help reduce risk by raising the visibility of KRIs that are approaching upper and lower tolerance thresholds, and to uncover opportunities. In order to optimize risk for opportunity, however, today’s solutions require advanced technologies that can enable risk leaders to uncover predictive insights from additional data sets.

Advanced Risk Management Technologies

Modern problems require modern solutions and risk technology is the perfect solution for the problems that risk managers now have to deal with. There are many different types of risk technology solutions available to bankers, each serving a different need. Risk technology is important because it automates many risk monitoring and assessment processes, which enables real-time risk assessments and data.

Advanced solutions leverage integrated internal and external KPIs and KRIs to detect problematic trends and predict emerging risks using Artificial Intelligence (A.I.) to augment internal and external risk data. These insights help drive executive decision making and enables the organization to increase profitability and accelerate innovation. With interconnected risk, KRI, and control data, risk leaders can also leverage real-time data so that a bank can more quickly seize opportunities than its competitors.

Risk technology has also become incredibly accessible over the past few years. Gone are the days when implementing risk management technology meant that a bank would need to spend millions of dollars and multiple months on the implementation. Modern cloud-based risk management solutions are easily affordable and can be implemented in a matter of days.

If your bank is interested in seeing how it can improve the way it manages risks for the post-pandemic era, get in touch with our risk experts for a demonstration of Predict360, our risk intelligence suite.