2012-01-10-Bain-Managing_Risk_and_Capital_12页_939kb

Summary

Banks are facing significant challenges in managing risk and capital under new regulations like Basel III and local mandates. A major issue is the disconnect between corporate-level financial strategists and frontline commercial managers, often due to misaligned reward systems that prioritize quarterly earnings over risk-adjusted performance. To excel in the future, banks must embed a comprehensive understanding of risk, capital, and liquidity into their decision-making processes.

Key areas addressed in the report include:

• Setting appropriate levels of capital: Balancing regulatory minimums, economic capital requirements, and target risk-adjusted capital, considering both short-term flexibility and long-term resilience.
• Selecting effective metrics: Evaluating whether to rely on traditional ratio-based measures (like Tier-1) or nuanced models (like Economic Capital) for capital allocation.
• Integrating risk into strategy: Linking risk appetite to strategic goals and ensuring that risk considerations inform daily business decisions.
• Using stress testing and scenario analysis: Incorporating forward-looking stress scenarios into capital allocation and planning.
• Improving organizational culture: Overcoming historical disciplinary atrophy in balance sheet management and fostering a risk-aware mindset.
• Building capabilities: In forming robust risk measurement systems and integrating technology, but recognizing that this is only one part of the solution.

Successful banks are embedding risk and capital-adjusted decision-making (RaCAD) across the organization, ensuring that strategic objectives, business units, and daily operations all incorporate risk and capital considerations. This framework helps banks manage their balance sheets effectively, navigate regulatory demands, and sustain growth without overpaying for risk. Bain & Company recommends seven key principles for implementing successful capital management frameworks, including strong leadership from the top, involving operational teams early, embedding risk in business processes, aligning compensation, and continuous communication.

While balancing the short-term need to remain competitive with long-term sustainable advantages, banks must invest in training, tools, and cultural shifts to truly manage risk, capital, and liquidity effectively.