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Why You Need A Risk Committee

by Eric Holmquist, Managing Director, Enterprise Risk Management

Let's face it: The last appointment anybody wants is another committee meeting.  It could be argued that management spends way too much time in committees that fail to contribute to bank performance, instead consuming large quantities of executives' scarce time.

Forming a risk committee is a different matter.  It can be one of the most significant steps a bank can take in advancing the scope, impact, and value proposition of its risk management program.  Properly structured, staffed, organized, and moderated, these committees can play a substantial role in ensuring sound governance and maximizing the bank's return on investment.

The idea of a risk committee is fairly logical.  As the bank continues to develop and expand its enterprise risk management (ERM) program, it follows that a governing body should be formed to oversee and direct the program, working with management and the chief risk officer (where one exists).  But banks are often unsure of how to structure these committees for maximum effectiveness and, more importantly, how to focus them.

We've all heard the questions and concerns that typically come up.  Why do we need another committee?  What would we possibly talk about that isn't already being addressed by an existing committee?   Our people are already too busy to make time for more meetings.  Do I really want a committee specifically chartered to document issues that could be used against us by an examiner?

All are valid questions, with equally valid answers.  Regrettably, without a clear understanding of the committee's purpose and charter, banks often focus the agendas for these committees on the same items already being discussed in other committees, which, while informative, is not only inefficient, but can drastically undermine perceptions about the value of the risk management program.

This article discusses how to properly design, structure, and charter risk committees within the institution so they have a distinct mission and provide unique value.  Properly executed, these committees will soon be perceived as one of the most significant governance bodies within the bank-if not the most significant.

To read this entire article, which appears in the April issue of the RMA Journal, please click here.