Choose your location to get a site experience tailored for you.

Remember my region and language settings

Risk Management

The banking business is full of risks, large and small. The greatest risks demand the most attention:

  • Credit risk generated by lending activities
  • Market and counterparty risk from trading activities (especially derivatives trading)
  • Liquidity risk arising from mismatched assets and liabilities
  • Operational risk caused by error and omission in core systems and processes
  • Risk associated with writing insurance contracts

Three of the principal issues facing banks and other financial institutions today are regulatory compliance, adapting risk management models to a shifting environment, and minimizing risk in a cost-effective way. Above all, financial institutions must take a proactive approach to managing risk.

Financial Institutions

Gerold Grasshoff on How Financial Institutions Can Take a Proactive Approach to Managing Risk

In this video, BCG’s Gerold Grasshoff, senior partner and managing director, Frankfurt, discusses the key lesson banks learned from the financial crisis: risk management.

Mastering Regulatory Change

The banking industry has entered a new era in which frequent changes to regulatory requirements are becoming the norm. This evolving environment significantly changes the way banks compete. Yet the trend of ongoing regulatory updates is still perceived by many as a temporary wave. 

The fact is that the tide of regulatory change is not rising just to recede again in the near future. Rather, it is like a continuously rising sea level, one that is here to stay and that will become part of daily operations, necessitating a change in how banks run their businesses. Banks and all financial institutions must professionalize how they deal with regulatory compliance in order to adapt to this trend. 

Moreover, although it has been nearly ten years since the global financial crisis first erupted, the banking industry is still feeling its consequences. Banks in different regions have recovered and advanced at different speeds, illustrated by their highly diverse profitability profiles today. Ultimately, implementing effective risk and compliance functions will be critical to gaining and maintaining healthy levels of profitability.

Four Key Questions for Financial Institutions

How can an institution efficiently manage its financial resources?

As financial institutions employ capital and maintain liquidity, they must adhere to strict regulatory requirements. At the same time, they need to find the best opportunities to earn a return and satisfy shareholders.

How can the effectiveness of risk management be improved?

Companies should continually evaluate whether their risk management procedures are adequate. As requirements change, financial institutions have to consider the implications for governance, systems, and infrastructure.

What is the impact of new regulatory requirements?

Regulations such as Basel III in banking, Solvency II in insurance, and International Financial Reporting Standard 9 are forcing companies to create new systems to ensure compliance. Companies must also manage costs associated with the increasingly strict regulatory climate.

How can an institution manage its biggest risks?

Financial institutions first need to identify their biggest risks. Once identified, those risks must be understood and managed at every level.

Lessons from Risk Management in Other Industries

Banks face many sources of risk. Regulatory and competitive pressures are forcing institutions to confront them and manage them rigorously. But how can banks know where to begin? Sometimes, it’s useful to explore how risk is managed in other industries.

FAA’s Peggy Gilligan on Risk Management in Aviation

An Interview with the Associate Administrator for Aviation Safety

In this video, Gilligan shares her thoughts on risk management with Duncan Martin, a senior partner and managing director in BCG’s London office and coauthor of Rethinking Risk Management in Financial Services: Practices from Other Domains.

Marc Castellnou on Risk Management in Firefighting

An Interview with the Head of Fire Analysis and Strategy, Fire Service of Catalunya

In this video, Castellnou discusses how risk is perceived and managed in the firefighting industry.

Financial Institutions
Previous Page