ey - remaking risk management in banking

Remaking risk management in banking

30 July 2013

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Today’s moderator

JB King Ernst & Young LLP (US)

Director, Marketing - Global Banking and

Capital Markets

Join today’s Twitter discussion: #EY_BankingRisk


Today’s agenda

► Assessing risk culture

► Linking business decisions to risk appetite

► Data and IT challenges investments

► Basel III driving business model changes



Today’s presenters

Rick Waugh Scotiabank

Chief Executive Officer

Patricia Jackson Ernst & Young LLP (UK)

Leader of Financial Regulation Practice

Hank Prybylski Ernst & Young LLP (US)

Financial Services Office Advisory Leader and

Leader of Financial Services Risk Management

The information contained herein is a summary in nature. Viewers should consult their own professional

advisors to address their individual circumstances and concerns.


Progress on risk management: fourth annual study and report

► Study overview

► EY, on behalf of the Institute of International Finance (IIF)

► Assess progress in the implementation of risk governance

since 2008 crisis

► Participants:

► 74 firms

► 36 countries

► 50 interviews with CROs and senior risk executives

► 68 online survey responses


Progress on risk management: fourth annual study and report (cont.)

► Themes

► Consistent culture cannot be assumed

► Organizational values to need to be clarified

► Tools like stress testing should be redeveloped and used

as management tools

► Continued investment in IT and data is essential

► Strategy should be rethought in light of new regulations

► Regulation, investor pressure and uncertain economic

environments cannot be underestimated

Survey available at: ey.com/banking


Today’s agenda







Opinion check

How important is it to have a single culture inside a

global bank?

A. Critical

B. Somewhat important

C. Not very important

D. Important but impossible to achieve

E. Other and does not apply (EY, faculty, alumni)


Progress in achieving a strong risk culture


0%

53%

44%

0%

10%

20%

30%

40%

50%

60%

We have a longway to go

We are makingprogress

We have achieveda strong risk culture

Action taken to review and assess internal risk culture


32%

7%

16%

45%

0% 10% 20% 30% 40% 50%

N/A

Cultural review by internalaudit

Cultural audits by third party

Review and discussion withsenior management led by

task force

Initiatives to strengthen risk culture


73%

71%

69%

56%

23%

16%

Strengthening risk roles

and responsibilities

Enhancing communication and training

regarding risk values and expectations

Reinforcing accountability regarding

risk management

Aligning compensation with risk-adjusted

performance metrics

Changing the composition of the board

and senior management team

Changing compensation to reflect

softer cultural issues

Progress in achieving a strong risk culture


► Firms severely impacted by the crisis vs. all firms

80%

70%

60%

50%

40%

30%

20%

10%

0%

68%

54%

43%

32%

We are making progress

We have achieved a strong risk culture

All

Severe impact

Today’s agenda







Opinion check

What is the biggest challenge your firm faces to risk

appetite development and implementation in your

organization?

A. Using the risk appetite framework for managing risk

B. Tracking and enforcing adherence to risk appetite

C. Linking risk appetite to business decisions

D. Expressing risk appetite for different risk types



Top five challenges to risk appetite development and implementation


29%

37%

43%

46%

65%

Achieving sufficient clarity

Determining the right metrics

Using the risk appetite frameworkfor managing risk

Expressing risk appetite fordifferent risk types

Effectively embedding it intooperational process

Testing of individual business decisions against risk appetite


54%

5%

41%

Not tested Largely tested Somewhat tested

Risk appetite linkage to the annual firm wide business planning process


40%

2%

58%

No linkage Significant linkage

Some linkage

Today’s agenda







Fact check

What is your firm doing to make stress testing

easier and faster?

A. Shifting to central testing models

B. Improving aggregation of data

C. Creating a central stress testing unit

D. Creating more integrated models



Data and systems a key challenge across a range of topics


23%

38%

59%

Business takingownership of risk

Systems and data

Balance betweensales-driven frontoffice culture and

risk-focusedculture

Top three challenges to strengthening risk

culture

34%

35%

49%

Shortage ofresources

Inadequatesystems

Difficulty inextracting and

aggregating data

Top three challenges to improving risk

culture

54%

63%

71%

Multiple orinconsistentregulatory

requirements

Systemsarchitecture

Dataavailability/data

quality

Top three challenges in implementing Basel

III

Change in IT spend over the last year


15%

22%

63%

0% 20% 40% 60% 80%

Decreased

Stayed the same

Increased

IT change under way


Improvement of liquidity data management

Support capital allocation compliance

Convergence/reconciliation of risk and finance data

Aggregation of group/firm data

Strengthen internal stress-testing processes

Capture of exposures across the group to single entities

Integration of firm-wide stress testing data

Capture and reporting on risks in VaR

Recovery and resolution planning

Today’s agenda







Fact check

Which of the following best expresses your investors’

tolerance for lower ROE (return on equity)?

A. Investors are pushing for increase in ROE

B. Low book to equity price is an impediment for capital-

raising

C. Investors demanding reduced costs including

compensation

D. Investors demanding business mix changes to

deleverage further



Impact of Basel III plus G-SIB* requirements on common equity Tier 1 capital


30%

5%

0%

5%

13%

7%

Less than 30%

31 to 50%

51 to 70%

71 to 90%

91 to 100%

101 to 130%

Above 130%

40%

* Global systemically important banks

Percentage of the balance sheet (under the LCR*) accounted for by liquid assets


47%

29%

20%

4%

10%-20%

Above 20%

5%-10%

2%-5%

0-2% 0%

* Liquidity coverage ratio

Effect of combined liquidity and capital changes under Basel III on business model


62%

43%

29%

13%

Evaluating portfolios

Shifting out of complex

less liquid instruments

Exiting lines of business

Exiting geographies

None of the above 8%

81%

44%

44%

17%

17% 2012

2013

One-minute recap


Resources

► http://www.iif.com/regulatory/standards

► ey.com/banking

► Remaking Financial Services: Risk

Management Five Years After The Crisis

(full study)

► Remaking Financial Services: Risk

Management Five Years After The Crisis

(Executive summary)

► ey.com/financialreform

► Follow us on Twitter @EY_Banking


Contact us

Lawrence (Hank) Prybylski

Ernst & Young LLP (US)

Patricia Jackson

Ernst & Young LLP (UK)

JB King

Ernst & Young LLP (US)

+ 1 212 773 2823

[email protected]

+44 20 7951 7564

[email protected]

+ 1 203 674 3446

[email protected]

Follow us on Twitter: @EY_Webcasts


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