Banking risk assessment methodology puts risk into focus

Ryan C. Luttenton, Gayle Woodbury
Banking risk assessment methodology puts risk into focus

Even with the financial services market in a constant state of evolution, many banks continue to use the same risk assessment methodology year after year.

Banks that regularly revisit and update their risk assessment methodology can better quantify and mitigate the risks they’re facing. But if your organization has a flawed risk assessment methodology, then it might be understating or overstating its risks. It also might be missing key details that put profitability and growth at risk.

While doing things the same old way can offer a certain level of comfort, regularly evaluating and adapting your risk assessment methodology gives you better opportunities to identify new risks that affect your bank.

A teamwide approach to risk management can help your organization

A teamwide approach to risk management can help your organization

An outdated risk assessment methodology might not provide the necessary insights for properly mitigating risk, and the wrong methodology often wastes time, money, and resources. Identifying a sweet spot in which your organization can be thoughtful about categorizing and quantifying risk is an essential component of being able to adequately handle change and drive business growth.

A harmonized risk assessment methodology that everyone understands and can speak to intelligently creates buy-in from the three lines of defense. That buy-in can improve confidence with regulators because it demonstrates that risk is being managed in a clear and consistent manner.

If your bank’s risk assessment methodology is consistently aligned with the organization’s processes and procedures, then risk can be proactively addressed. Adopting a holistic approach to integrated risk management can generate confidence that all lines of defense are working on risk together. And when the first and second lines are in sync, organizations can be more strategic and proactive about handling risk rather than wasting hours trying to coordinate information, reports, and questions.

Your risk assessment methodology can align with the foundations of your business

Your risk assessment methodology can align to the foundations of your business

Banks make a wide variety of risk assessments – including credit, market, IT, audit, and operational, to name a few. They all differ slightly and they’re handled by different people and departments, so the challenge is making sure all the risk assessments align and that common language is used.

Foundational items organizations can put in place to help strengthen their risk assessment methodology include:

  • Taxonomies. Organizations should define the common risk categories used throughout the business to provide a clearer picture of what needs to be measured and mitigated.
  • Terminology. The appropriate risk rating needs to be determined. Is it a high, medium, or low rating, or is the organization using a five-point scale? A consistent rating system provides clarity and streamlines the risk management process.
  • Stakeholders. Stakeholders include more than just the members of the risk and compliance team. Everyone in the organization has a role in managing risk, and everyone should be identified accordingly.
  • Process. Once the organization is measuring risk, it then needs to determine the ground rules for evaluating the impact and prioritization of the risks identified.

A comprehensive GRC platform can jump start your risk assessment methodology and put risk into focus

A comprehensive GRC platform can jump start your risk assessment methodology and put risk into focus

Crowe risk management professionals’ years of experience helping banks achieve integrated risk management led us to create Crowe IRM-as-a-Service. This right-sized solution provides a central hub for risk and compliance activity and helps streamline communication. Crowe IRM-as-a-Service includes a library of risk and control content that’s relevant to lines of business, products, and processes. When teams speak the same language, organizations can explore growth strategies with agility and speed.

To learn more or schedule a demo, visit the Crowe IRM-as-a-Service webpage. 

Let's connect

If you need to update and refine your risk assessment methodology, we’re here to help. Drop us a line and we’ll schedule time to chat.
Ryan Luttenton
Ryan C. Luttenton
Partner, Financial Services Consulting
Gayle Woodbury
Gayle Woodbury
Principal, Integrated Risk Management Leader