Banks Not There Yet on Op Risk -- McKinsey
"In our work with banks, we find that their operational-risk infrastructure remains overly focused on measuring risk rather than mitigating it." That's the word from Cindy Levy and Antonio Simoes are principals in McKinsey's London office, and Hamid Samandari is a principal in the Washington, DC, office writing in the latest McKinsey newsletter. http://www.mckinseyquarterly.com/article_page.aspx?ar=1835&L2=10&L3=51&srid=27&gp=0
More excerpts:
Procedures for wrestling with potentially risky business practices are rarely in place and, where they do exist, are rarely systematic. "Soft," qualitative issues such as front-office culture and the concerns of key external stakeholders are typically overlooked. Complacency at the business unit level—a consequence of the centralization of risk functions and the feeling that "it's someone else's job"—frequently goes uncorrected.
Take the fast-growing global bank that put more than 300 new products onto its back-office platform in a single year. So many changes occurred so fast that senior leaders lacked a shared understanding of the client disclosure requirements in some of their highest-growth businesses. Instead of following a standardized approach, hundreds of midlevel traders had to exercise individual discretion, thereby exposing the bank to unnecessary risk.
Our recent experience suggests that the savings achieved in some processes by reducing error rates (in other words, losses from operational risk) can far outweigh the savings achieved through traditional cost reduction measures.
Good reading
