Bank Chief Risk Officers Under Increasing Pressure as Recession Looms
Friday, 02 December 2022 06:33.PM
- Risk Management Association, Oliver Wyman Survey Finds Growing Demands from Financial, Non-Financial, and Strategic Risks -
Chief Risk Officers are balancing a wide range of demands heading into 2023 – a year in which many emerging risks may be realized, the CRO Outlook 2023 study by the Risk Management Association and global management consultancy Oliver Wyman has found. In addition, North American bank CROs representing institutions with assets ranging from $25 billion to over $1 trillion say economic worries and the need to prepare for potential recession are piling on top of non-financial risks like consumer compliance, cyber threats, and climate risk.
Top risk priorities
(Percentage of respondents citing each among their top five priorities)
1. Recession readiness - 52 %
2. Consumer compliance - 48 %
3. Cyber risk - 43 %
4. Fraud/financial crime - 39 %
5. Operational resilience - 32 %
CROs also see additional risks approaching. The most frequently cited emerging risks range from regulation to volatile interest rates to competitive risks from disrupters.
Top emerging risks
(Percentage of respondents citing each among their top five emerging risks)
1. Change in regulatory focus/intensity - 69 %
2. New interest rate regime/inflation - 62 %
3. Recessionary environment - 51 %
4. Disruption by challengers - 42 %
5. Heightened consumer compliance expectations -42 %
Worries about the recessionary environment and heightened consumer compliance expectations are new entrants to the survey, now in its second year. Eighty percent of CROs expect competition for deposits will increase in 2023, creating potential funding and liquidity risks.
Climate and ESG risk also remain high on the CRO risk agenda.
Operational resilience a key focus
Faced with these challenges, CROs remain committed to improving their firms' operational resilience. While the industry as a whole was able to carry out its vital role despite the challenges of the pandemic, there is broad recognition that more work is required to increase preparedness for faster-moving and more idiosyncratic disruptions.
Top operational disruptions identified by respondents include a variety of third-party disruptions (93%), data corruptions (for example, those caused by ransomware) (70%), and internal technology failures (55%). CROs see strong business reasons for improving operational resilience. Business concerns including customer experience and changes in business or operating models are among CROs' most-often-cited reasons to improve resilience.
A packed priority list
Bottom line: CROs are facing extraordinary demands on their time and attention, as they add critical financial risks to a lengthy list of operational concerns. "At RMA, we are focused on supporting Bank CROs and all financial risk professionals as macroeconomic headwinds create further challenges," RMA President and CEO Nancy Foster said. "Risk officers have their fingers on the pulse of threats to their companies' success – and on opportunities that lie in change. The results of this survey serve as a guide to leaders throughout banks on the top risks they face."
CROs will have to navigate a complicated balancing act between financial, non-financial, and strategic risks as they help steer their banks through the challenges ahead. "Balancing an even fuller agenda is going to be the main challenge for CROs in 2023," Oliver Wyman Partner Mike Duane said. "Investing in talent and ruthless time prioritization are going to be critical for CROs. Making space to address recession-related concerns without dropping the ball on critical operational and strategic risk issues will be among their main challenges in 2023."
The survey was conducted in the summer of 2022. More than 40 bank CROs from North America participated, representing institutions with $25 billion to more than $1 trillion in assets.
SOURCE: The Risk Management Association