TraceRisk ERM Blog

KISS - Keep it Simple Silly: ERM Guidance in laymens terms

Enterprise Risk Management, or “ERM” for short, came into clear focus when, in 2000, the Office of the Comptroller of the Currency (OCC) issued Bulletin OCC 2000-16 on Risk Modeling. For the first time, the agency was expressing its concerns about how [national] banks were measuring risk exposure across all aspects of their operations. In the years following, the OCC, FDIC, FRB and FFIEC issued literally hundreds of guidance letters on ERM and community banks have wrestled with how to cope with the Risk Management process ever since.

And, it’s not getting easier. See the OCC’s recent announcement regarding the strengthening of its Risk Analysis Division by appointing a Deputy Controller for Risk Analysis (see OCC News Release 2011-153) who “will play a vital role in the OCC’s supervision of national banks, and, as a group, they provide the expertise we depend on to ensure that banks use quantitative models safely and effectively.” Then there is the FDIC’s recent press release: “The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved the organizational plan of the Office of Corporate Risk Management (OCRM) that will assess external and internal risks faced by the FDIC.” These announcements suggest the OCC and FDIC will be intensifying their scrutiny on ERM initiatives at community banks in 2012 and beyond. So, how can you prepare?

In our first installment entitled “Use the CUBE”, we broke down the elements of the Basel Commission’s Integrated Framework so you could see how the ERM process works. If you missed it, ask for a copy by contacting us at rmaslac@tracerisk.com

From time-to-time, we will be sharing ideas with you that will help your bank achieve the maximum effect of your Enterprise Risk Management (ERM) initiative. We begin with the Integrated Framework “Cube” which sets forth an organized way of developing your ERM solution and we’ll keep it simple.

There are many ways to assess risks in a bank. We have studied them all and found that, for community banks, looking at risk can be accomplished most effectively by using the prism effect. What is the “prism effect”? It’s simply taking one view and seeing risk in a four dimensional aspect: by subjects; by risk silos, by the COSO Integrated Framework; and, by risk inventories – all at once!

Some banks have an idea, albeit vague, about performing risk assessments. But few have made real progress in planning or actually implementing a Risk Assessment Program. Here is a practical approach that demystifies the process so you can get going!

The end of an eight-year infatuation with community banking, and suggestions for restoring the relationship