Investment Banks

Investment Banks

The scope, timing, and potential impact of still-evolving global regulatory reform is one of the biggest challenges facing banks today and is driving a total reshaping of the financial industry. Challenges from the regulatory environment are further complicated by continued volatility in financial markets. Despite these challenges, progress continues in the improvement of risk management since the 2008 financial crisis. Risk management structures have undergone significant changes since 2008; however, there is still much to be done to fully implement new methodologies and processes. Post-crisis, the industry has invested substantially to expand the size and level of sophistication of the risk function at both the group and business unit levels. While this provides a good start for banks, a further independent voice coming from outside of the firm is necessary to provide the most efficient risk management services. Key areas of major changes in risk management include the following:

  • Chief Risk Officer Role

    Many CROs find that they can only partially cover the risk management issues of their entire firm. Their expanded responsibilities now encompass far more than traditional focus areas such as credit and market risk. With these added responsibilities, many CROs now look to outside advisors to assist them in their day-to-day risk management responsibilities.

  • Stress Testing

    There is clearly a need for a much more thorough assessment of risk for banks. Improving stress testing is extremely important to improve risk governance. The evolving regulatory and business environment has heightened the need to strengthen internal stress-testing strategies and processes. Stress tests have far more uses than merely compliance and risk management purposes. They can be used as strategic management tools for banks. Challenges in stress testing still remain, especially the sheer amount of time it takes to complete bottom-up tests. Many banks struggle with the long process of stress testing as few firms are experts in this field.

  • Risk Team Composition

    Since 2008, the financial industry has invested substantially to expand the size and level of sophistication of risk management teams at both the group and business unit levels. While this expansion has added to internal risk controls, the need for outside advisors with executive-level experience has increased exponentially.

  • Modeling

    Upgrading methodologies to identify concentrations of risk has become particularly important. While a bank might feel that its assets are diversified properly, closer inspection by outside advisors often points to results that suggest the opposite. Pre-2008 economic capital models often underestimated the size and risk of exposures, especially across multiple business units. Correlations were often non-existent, leading to a total revamping of risk measurement that is far from complete.

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At Gateway Partners, we pride ourselves in the experience our partners and staff have at the executive level of major Wall Street and retail banks. With this knowledge, our banking clients know that their best interests are served by the independent voice we provide.

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