A LinkedIn discussion thread mulls a potential hazard of rigid risk management: Does an unyielding concern for risk impede financial institutions from coming up with creative solutions to traditional problems?
To say one is a banker because he or she works at a bank is like saying you are a car because you live in a garage. The term banker must mean something.
Trader fraud occurs only because we do not require immediate trade confirmation posted infallibly to the institution's books. Instead, the trader is allowed to wave a magic wand to create false transactions or hide real ones.
The board of directors must anticipate the unexpected and quickly execute strategic alternatives when a problem arises, regardless of its severity. Failure to do so could land their financial institution on the FDIC's problem list.
For banks to tap into the full potential of advanced analytics, they should address some difficult challenges, including vast quantities of poorly organized data, inadequately skilled staff and risk management operations still stuck in silos.
Some courts will deem financial institutions liable simply for knowing about the red flags, while others require proof the bank knew about their customers' schemes. This subjective standard is often unfair and difficult to manage.
The Public Company Accounting Oversight Board's first report this year on a Big Four firm confirms my long-held suspicion: Auditors have been too easy on banks when they book reserves for loan losses and repurchase demands.
Perhaps, given the wild ride of the past decade, banking can learn something from aviation, an industry that has posted an impressive and improving safety record over a similar time span.
Bain Capital's relationship with auditor PricewaterhouseCoopers, though not necessarily inappropriate, is still too casual and in need of more monitoring.
Vikram Pandit's recent comments about Citi's size may provide insight into why this once-proud institution now limps along as one of the weakest of the bailed out, Too Big to Behave Banks.
