Regulators should create a risk management quality rating that may be used in examinations and deposit insurance pricing. Banks should build capabilities that comprehensively assess the quality of their risk management processes tied to strategic business goals.
It is easy to see the stress tests as an annoying distraction to banks. However, if banks embrace them, these tests can be a useful arrow in the risk management quiver.
Lenders can take advantage of a concept the CFPB missed: compensating factors. Strong credit histories, substantial down payments, stable jobs and documented incomes can offset high debt-to-income ratios, for example.
Zombie companies have survived on the loose monetary policy of the past few years, designed to help at-risk businesses stay afloat and keep people employed in the wake of the financial crisis. But forthcoming changes will make it hard for these firms to repay their debt.
Unregulated entities face a tough road ahead. More banks will align IT risk with enterprise risk management. Banks will place heightened emphasis on their overall risk management vision, and data architecture will emerge as critical competency.
Why banks should strive to bridge the gap between audit teams and business lines with better information sharing, high-powered data analytics and business risk assessments.
