Banks with Separate Risk Committee See Better Financial Performance

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BRENTWOOD, TENN., March 25, 2014 – Banks with a separate board-level risk committee report a higher median return on assets (ROA), at 1.00, and higher median return on equity (ROE), at 9.50, compared to banks that govern risk within a combined audit/risk committee or within the audit committee, according to Bank Director’s 2014 Risk Practices Survey, sponsored by banking and payments technology firm FIS™. The survey gathered 107 responses from independent directors and chief risk officers of U.S. banks with more than $1 billion in assets.

Many banks are adopting risk practices required by law for larger companies. Sixty-three percent of respondents oversee risk within a separate risk committee of the board, although the Dodd-Frank Act only requires this of banks with more than $10 billion in assets. The overwhelming majority, at 97 percent, employ a chief risk officer, which is only required of institutions with more than $50 billion in assets.

“The survey uncovered several key findings, and found that a best-practices approach to risk oversight does translate into better performance,” says Sai Huda, senior vice president and general manager of Enterprise Governance, Risk and Compliance (EGRC) solutions, FIS. “The greater the linkage between the strategic plan and risk management and more specialization and focus by the board on risk, the better performance you’re going to get financially.”

Still, the survey found banks have a ways to go in improving risk practices. Other key findings include:

  • Fewer than half of boards say they hold regular sessions with the chief risk officer. More than 30 percent don’t have a board member with risk expertise.
  • Less than 20 percent review the bank’s risk profile and related metrics at the board and executive level monthly. Almost half review these metrics quarterly, while 23 percent review twice a year or annually.
  • Only one-third of respondents feel that the bank’s risk appetite statement covers all risks faced by the institution, and less than half use it to provide limits to board and management. One-quarter of respondents say the bank does not yet have a risk appetite statement.
  • The regulatory environment continues to challenge bank boards. Keeping up with regulatory expectations of risk management practices was cited as the biggest risk management challenge by almost half of respondents, and 55 percent cite the volume and pace of regulatory change as the environmental factor most likely to cause risk evaluation failures at the bank.
  • Cyber security risk is a key concern. Fifty-one percent of respondents cite cyber security risk as the risk category that concerns them most. Compliance with regulations is a key concern for 43 percent.
  • Fifty-seven percent of directors feel they could benefit from more training in how new regulations pose risk to their institution, and 53 percent want a deeper understanding of emerging risks, like cyber security or Unfair, Deceptive or Abusive Acts or Practices (UDAAP).

Full survey results are available online at BankDirector.com, and will be featured in the 2nd quarter 2014 issue of Bank Director magazine. In a related video, “Five Risk Management Best Practices for 2014”, Huda highlights how key findings from the survey can translate into best practices for bank boards. The survey was conducted online in January 2014.

Since 1991, Bank Director has served as a leading information resource for the directors and officers of financial institutions. Through its quarterly Bank Director magazine, executive-level research, annual conferences, and its website, BankDirector.com, Bank Director reaches the leaders of the institutions that comprise America’s banking industry. Bank Director is headquartered in Brentwood, Tennessee.

FIS (NYSE: FIS) is the world’s largest global provider dedicated to banking and payments technologies. With a long history deeply rooted in the financial services sector, FIS serves more than 14,000 institutions in over 110 countries. Headquartered in Jacksonville, Fla., FIS employs more than 39,000 people worldwide and holds leadership positions in payment processing and banking solutions, providing software, services and outsourcing of the technology that drives financial institutions. First in financial technology, FIS tops the annual FinTech 100 list, is 434 on the Fortune 500 and is a member of Standard & Poor’s 500® Index. For more information about FIS, visit www.fisglobal.com.

Source: BankDirector.com

Contact: Emily McCormick, director of research, (615) 777-8471, [email protected]

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