Risk Professional - December 2009

While the overwhelming majority
of banks have a chief risk officer,
the CRO does not always report
to the CEO.

2008), only 50% of the banks with an all-risks committee held meetings of this committee on at least a bimonthly basis. It is very challenging, under these circumstances, for board committees to provide effective and timely risk oversight.

What’s more, there’s room for improvement in the composition of these all-risks committees, either in terms of the actual independence of the committee members and/or the appropriateness of members’ professional experience and background.

Lastly, while the overwhelming majority of banks have a CRO, the CRO does not always report to the CEO. In addition, only in a handful of institutions does the CRO have a formal reporting line to the board. A strong relationship between the board and the CRO is a key to ensuring effective risk oversight, and is too important to be left to informal arrangements.

In light of the increased emphasis that both regulators and the industry are putting on strong risk governance, many banks are now in the process of reviewing their corporate governance practices, including their arrangements for risk oversight. From a risk committee composition perspective, we expect to see advancements in terms of both committee structure and the experience of non-executive directors in the risk management area, and we will monitor progress closely. This process, however, might take some time to evolve fully, and might lose momentum once the crisis starts easing.

FOOTNOTE

1. The analysis is based on data contained in annual reports for year-end 2008 and banks’ Web sites as of the end of Q1 2009.

Alessandra Mongiardino (PhD) is vice president, senior credit officer and team leader of Moody’s Investors Service’s risk management specialist group. She can be reached at alessandra.mongiardino@moodys.com.

Chris Plath is a vice president and corporate governance specialist at Moody’s. He can be reached at chris.plath@moodys.com.

Region/Country Complex Institutions Universal/Commercial Banks

Asia;Pacific

Australia Macquarie ANZ, NAB

Singapore DBS

Europe

Belgium Dexia, KBC

Denmark Danske Bank

France Credit Agricole SA

Germany Commerzbank

Italy San Paolo Intesa, UniCredit Netherlands ING, Rabobank

Spain BBVA, Santander Group

S weden Nordea

Switzerland

UK Lloyds TSB

North;America

Canada Bank of Nova Scotia, CIBC, TDB US

Wells Fargo

APPENDIX: A LISTING OF BANKS REVIEWED The analysis presented in this article includes 35 banks in three geographical regions and 14 countries. All banks, except DBS Group and Macquarie Group, had assets of US$300 billion or more as of year-end 2008.

Banks were split into two groups: “complex institutions” and “universal/commercial banks.” The table below lists the banks that we examined, broken down by country and type of institution.