Risk governance practices at the world’s largest banks have improved substantially since the financial crisis, but they have yet to be truly tested, says a new report from New York-based credit rating agency Moody’s Investors Service.
The systems and processes banks use to assess corporate risk have improved significantly since 2009, the Moody’s report notes. The report, which examines the disclosures of 62 banks around the world, which found that nearly all of these banks now have a dedicated board-level risk committee that is separate from its audit committee.
These changes, particularly the establishment of dedicated and independent board-level risk committees, are clear credit positives for bank creditors, the Moody’s report says. “Stronger international regulatory standards have led to changes in how banks deal with risk within their firms and outside their walls,” says Simon Ainsworth, vice president at Moody’s, in a statement “We’re seeing more of the large global banks demonstrating compliance with international standards compared to 2009.”
However, many of the committees have been established only recently and therefore have no track record, the Moody’s report notes. Also, while nearly all of them are comprised of independent members, most have no formal requirements on members’ experience, the report points out.
“The global banks have established these risk governance committees, but many of them are still relatively new,” says Ainsworth. “Ultimately, the true test of these processes and systems will be how effective they are in managing the banks’ risk profile as they conduct business day-to-day.”
In additionally, the vast majority of banks now have a chief risk officer, but their stature within the banks varies, the Moody’s report says. Many are members of the bank’s executive committee or management board, but this is not the case in all banks, the report notes.