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VOL. 127 | NO. 39 | Monday, February 27, 2012




Banks Should Focus on Risk Assessment

By Layne McGuire

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After the turmoil of the Great Recession, the next few years will be an exciting time for community banks and community bankers.

Challenges and opportunities abound. In such a dynamic environment, a robust risk assessment process can not only help banks avoid regulatory and compliance issues but also provide assistance in successfully meeting strategic objectives. When the risk assessment process is viewed as a vital management tool instead of a routine requirement, it can bring value.

Several recently published articles and a recent speech by Federal Reserve Chairman Ben Bernanke contend that the current economic environment is an opportunity for community banks to grow. At the same time, the regulatory burden facing banks has never been greater. Most would agree that this situation is not going to change any time soon. Community banks are focused on understanding the way forward. Balancing competing demands while seizing business opportunities can stretch resources to their limits. There is something that can help.

One tool that management can use to navigate this terrain is the risk assessment process. Risk assessment needs to be an ongoing activity rather than an annual exercise that is updated quarterly at best. It is also vital that it be a collaborative effort between the board of directors, executive management, operational management, risk management, compliance functions and internal audit.

In other words, it is a shared responsibility. Each party plays a key role. The board of directors drives the determination of risk appetite. Executive management takes a broad view of the organization while operational management is best positioned to understand where the greatest risks lie. Risk management and internal audit play key roles in driving the assessment process by helping everyone speak a common risk language.

Internal audit can be a powerful partner in the process by assisting with the assessment itself and challenging the results of the assessment. Last, but certainly not least, in a banking environment is the vital role of compliance. Compliance officers are vital to the process for a several reasons. Not only do they ensure the compliance of regulations, they also play a key role in identifying issues and situations that can lead to noncompliance before they occur.

With so many stakeholders involved, it is vital that adequate time and attention are given to the process. The risk assessment is a time for everyone to step back and think about strategic objectives, the risks to achieving those objectives and the controls that are in place to mitigate those risks. When done properly, the risk assessment can drive value in the organization.

However, in order to maximize this value, the risk assessment must continually be challenged and reevaluated. Community banking is a dynamic business because the economy is dynamic. Today’s assumptions may or may not be valid six or even three months from now. By developing a process to ensure that the risk assessment is a living, breathing document, banks can derive maximum value from what can often be a routine exercise.

Layne McGuire is a senior manager at Dixon Hughes Goodman LLP, specializing in banking and financial institutions.

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 72 218 10,440
MORTGAGES 91 293 13,620
FORECLOSURE NOTICES 3 46 2,690
BUILDING PERMITS 0 393 24,700
BANKRUPTCIES 62 184 10,076
BUSINESS LICENSES 25 62 3,798
UTILITY CONNECTIONS 90 338 14,895
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