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Risk management: Slow progress getting best practice

Ernst & Young survey reveals mixed results; Good news on risk governance, liquidity and funding

Last month, Ernst & Young released details of a second annual survey of leading international banks’ progress in implementing the best-practice recommendations first published in 2008 by the Institute of International Finance. Sixty-two banks took part, many offering chief risk officers and other senior risk staff for interview.

Long before Lehman collapsed and the Basle Committee on Banking Supervision launched Basle III, a group of bankers headed by Rick Waugh, chief executive of Scotiabank, and Cees Maas, former CFO and vice-chairman of ING, had already set out to learn the lessons of what was then called the sub-prime crisis. They pulled together the best ideas of the leading banks on risk management, stress testing, funding and liquidity, compensation and other weaknesses exposed by the unfolding near collapse of the financial systems of the US, UK and continental Europe.

Huge gap

In their own rush to change regulations, policymakers have overlooked the industry’s effort to put its own house in order and might be suspicious that any such survey can only be self-serving. "In the run-up to the crisis, we were misled over industry best practice," says José María Roldán, chair of the standards implementation group of the Basle Committee and also director general of banking regulation at the Bank of Spain.