What can a bank do to avoid bankruptcy? For one, they can pay more attention to their risk managers and take warnings about high-risk investments more seriously.

Bank managers agree, according to a recent survey performed by KPMG, a Dutch firm offering audit, tax and advisory services. In their survey, KPMG questioned 500 bank managers.

As much as 75% admit that banks consider risk management to be a supporting function, and fail to make it a structural part of the decision making process. 45% of the interviewees state that the board does not have sufficient knowledge of risk management. What do they feel needs to be changed? 60% say risk managers should have a bigger influence on corporate strategy. 75% say that the banking sector needs stricter rules.

Corporate strategy
According to Rob Fijneman of KPMG, banks do have good risk management programs. The problem is that their findings are not properly implemented. What banks need is a good framework, integrating risk management into the corporate strategy. “Currently, the role of risk management is too scattered”, says Fijneman. “A lot of departments have their own risk managers, and they all work independently of each other and focus on different things”.

Fijneman wants risk management to become a part of the board and have both higher management and board members become more involved. “We need this, to regain consumer trust.” He stresses that risk assessment should be part of every commercial decision that is made.

Will banks better themselves when it comes to risk management? Do they take the role of risk managers more seriously now, with the economic situation the way it is, than before?

Dutch newspaper Het Financieel Dagblad did a quick check up in October of 2008 with some of the bigger banks in the Netherlands. Risk managers of Fortis and ING haven’t noticed much difference, because “there has always been an emphasis on risk management”. Pieter Emmen, risk manager of the Rabobank, however, does notice a change in attitude. “In the past I was regarded as a deal blocker. Not anymore. The board of directors stays at bay when a risk manager has decided, on good grounds, not to provide credit.”

Paul Moore – once the top risk manager at the British HBOS bank – claims he knows how it feels when your employer ignores your advice. Moore, who was at the head of the risk management department from 2002 to 2005, released a memo early february stating “a total failure of all key aspects of governance” at HBOS between 2002 and 2007. According to Moore, they let investments in real estate run completely out of control and completely ignored his warnings for years.

Moore stresses that many risk managers at HBOS knew that they would be cast aside as trouble makers had they openly expressed their concerns. That’s why they didn’t speak up. Moore did. “I am still toxic waste now for having spoken out all those years ago!” Moore claims he was fired because he opened his mouth. He filed a complaint which was finally settled outside court in mid 2005.