Eddy Wymeersch

Risk in financial institutions: is it Managed?

WP 2012-04

Adequate Risk management has become the central pre-occupation of financial regulators, central banks, and banks as well. Awareness about the risk issue has increased considerably, partly spontaneously, partly under the pressure of new regulations, esp. the Basel III standards. Risk measurement, risk appetite is a management tool, a process and a learning curve, more than a fixed formula. Risk inspired restrictive measures abound, but may overly reduce the credit flow to the economies, making it difficult to strike the right balance between risk stability and liquidity provision.
The Basel II CRD IV call special attention to risk management by introducing some very clear cut rules, leaving the traditional comply and explain approach to a stricter supervisory intervention. Should a bank adopt its behavior if this may potentially trigger macro-risk? What is the role of the auditors and of the shareholders dealing-opposing strict risk management. More work has to be undertaken, but banks obviously are investing considerably in better risk controls.