2011 Bank Audit Committee

Conference tackles the challenges of risk

Risk was the overriding topic of Bank Director’s Bank Audit Committee primer and conference June 13-15 in Chicago: how to measure it, track it and oversee it, all while managing a productive relationship with bank management and regulators. In an economic environment where banks are hard-pressed to make the profits their investors once enjoyed, audit committees, and sometimes, new risk committees of bank boards, will have an increasing amount of responsibility as new products, services and even whole new business plans are rolled out, all while regulators are increasingly focused on how banks manage emerging risk. Below are some of the highlights of the conference.

Regulator Says Business Model Risk Is Huge

Bert Otto, deputy comptroller for the central district in the Office of the Comptroller of the Currency, says regulators are scrutinizing banks for a variety of risks, from strategic, to credit to reputational risk. “When a bank suddenly changes the business model and they don’t have the proper systems and controls in place, that’s a recipe for disaster and we have found several banks who have failed because of that,” he says.

Risk Management Looks Forward

Christina Speh, director of new markets, enterprise risk management for Wolters Kluwer Financial Services in Washington, D.C., says a critical focus in risk management is asking what could happen in the future. “From an audit perspective, the job is to look at what we’ve done in the past. It’s important to do that, but you also want to say, ‘What is the likelihood that something is going to happen in the future?’ Assume you’re an individual and you’re blindfolded and you walk across the street 10 times and you never get hit by a car. Does that mean if you walk across the street again, you won’t get hit by a car?”

Best Practices On Boards

Harry Argires, a partner at KPMG, says the Dodd-Frank Act’s requirement of risk committees for boards of banks above $10 billion in assets will become a best practice in the industry overall. “Whether that means that over time it will be OK to have an audit/risk committee or compliance/risk committee remains to be seen,” he says.

Establishing Trust

Pat Langiotti, chair of the enterprise risk committee and member of the audit committee of the board of National Penn Bancshares in Boyertown, Pennsylvania, says she has cultivated a relationship of trust with the bank’s chief risk officer, who reports directly to her rather than the CEO. “You don’t want management to think they’ll be executed at dawn if they tell you something bad,” she says.