Risk governance practices at the largest global banks have tightened since 2009, reflecting tougher international regulation, according to a new report by Moody’s Investors Service.
Nearly all of the 62 banks surveyed by Moody’s now have dedicated and independent board-level risk committees that are separate from their audit committees. This change and others are “clear credit positives for bank creditors,” Moody’s says.
“Stronger international regulatory standards have led to changes in how banks deal with risk within their firms and outside their walls,” Moody’s Vice President Simon Ainsworth said in the report. “We’re seeing more of the large global banks demonstrating compliance with international standards compared to 2009.”
However, many of the committees have been established only recently and so have no track record of performance, according to the report. Also, while nearly all are comprised of independent members, most have no formal criteria for members’ experience.
“Ultimately, the true test of these processes and systems will be how effective they are in managing the banks’ risk profile as they conduct business day to day,” Ainsworth said.
The frequency of banks’ risk committee meetings varied between banks in the U.S. and Europe and those in Asia. The U.S. and European banks convened risk committee meetings on average nine times a year, while reported data showed that banks in Asia met on five or fewer occasions a year.
The vast majority of banks also now have a chief risk officer, but the stature of that position varies across banks, according to the report. Many are members of the bank’s executive committee or management board, but that is not the case at all banks.