Outgrowing Check-the-Box: Banking Risk Management’s Better Way Forward
In banking, risk management can often place heavy emphasis on manageing the risks taken by investment activities, with much less stress on well-rounded governance, risk, and compliance (GRC) practices. GRC programmes are widespread, yet many stop at minimum requirements. They do just enough to avoid compliance and audit issues but invest little in sound operational risk management.
Banks don’t lack resources or frameworks for risk. What’s missing is perspective: a shared understanding of risk, not just as a compliance need, but also as a central force in shaping business decisions.
Banking Risk Management Beyond Portfolio Theory
Many banks still conceptualize risk solely as the dial of financial risk-taking that they can adjust up or down based on market conditions.
When risk stays linked only to earnings, it gets managed mainly through financial lenses, such as its relationship to credit exposure and capital reserves. This framing gives the mistaken impression that all important risks to a bank can be overtly decided and controlled. It pays only lip service to risks like operational fragility or third-party exposure. A profit-first risk model might not account for operational fragility or third-party exposure, among other threats.
That’s where a risk-forward culture should begin: identifying how non-financial risks ripple into business performance. Unless risk leadership plays a central role in business planning, that cultural shift can’t happen.
The Evolving Role of the CRO
The 2023 regional banking crisis gave the Chief Risk Officer (CRO) increased strategic visibility. In the aftermath, 84% of US bank CROs now report being highly involved in strategy, which is a notable shift. However, that momentum could easily stall. Traditionally, CROs have been relegated to audit and compliance but not always brought into capital planning or product strategy. Institutions will have to stay vigilant to ensure this evolution has permanence.
GRC That Thinks Ahead
In many banks, GRC plays a relatively limited role, mainly focused on audit trails rather than insights. This leads to narrow execution: quarterly risk reviews, control testing, and compliance training. These are necessary activities, but they rarely connect to strategic questions, like: Which strategic bets are you taking? What might undermine them? Who’s accountable?
Box-checking GRC provides an illusion of safety. Mature banking risk management provides context and foresight, and it also challenges assumptions.
Silicon Valley Bank: A Breakdown in ERM
Silicon Valley Bank’s (SVB’s) 2023 collapse wasn’t an unforeseeable event; it came from the bank’s own fragmented oversight. The bank’s issues – a concentrated tech-sector deposit base, long-duration securities, and rising rate exposure – were all identifiable. However, the risk function operated in silos. The CRO position was vacant for eight months during a pivotal time for interest rates. Modelling was disconnected across treasury, liquidity, and depositor behaviour. No one was synthesizing the signals. Internal warnings were missed or ignored, and formal structures lacked integration and escalation.
SVB’s weak enterprise risk management (ERM) is a cautionary tale for many businesses. The bank had formal risk management structures, but they weren’t integrated across the organisation. According to Strategic Risk Global, only 32% of organisations consider their ERM “mature” or “robust.”
SVB’s reactive risk culture left leadership with little room to respond when liquidity concerns triggered a bank run. While proactive risk culture may not have completely eliminated SVB’s exposures, it could have prompted earlier hedging, more aggressive diversification, or a reevaluation of liquidity assumptions before panic had already set in.
What Does Mature ERM Look Like?
SVB showed what happens when ERM is reactive and siloed, but what does mature banking risk management look like in practice? Mature ERM is defined by how well risk intelligence shapes decisions. Therefore, at the core of a mature model:
- The CRO is a strategic advisor. They’re given full visibility and enough independence to be honest.
- Independent audit functions are strong. They’re able to challenge decisions and escalate concerns.
- Risk lives inside the business. It’s part of product development, growth planning, and decision-making.
The CRO should support growth, but not at the cost of independence. A strong second line and audit team preserves that balance and prevents conflicts of interest.
Culturally, maturity starts with how risk is framed. It’s not about avoiding bad news; it’s about surfacing it early. That happens when:
- Risk teams are brought in at the design stage, not just in approvals.
- Transparency is rewarded over appearances.
- Dissent is seen as diligence.
Mature ERM doesn’t eliminate risk, but it ensures that the responses are fast and coordinated.
Why Does Maturity Matter?
When banks invest in maturing their GRC and ERM capabilities, they’re not just protecting themselves; they’re expanding their capacity to take the right risks. That results in many benefits, including:
- Increased risk capacity: When risk is tightly managed, leadership can take on more risk with confidence.
- More informed decision-making: Mature ERM gives executives a clearer view of risk-return trade-offs.
- Greater agility: With clearly defined controls, banks can spot red flags earlier and pivot faster.
- Board confidence and credibility: Institutions with strong ERM tend to earn more trust, giving them more leeway in strategic moves like expansion or capital allocation.
- Strategic use of risk appetite: Mature organisations actively optimize their risk appetite, which allows them to stretch where it makes sense.
How Software Supports Maturity
Modern risk software can give financial institutions the visibility they need to support a mature, risk-aware culture. Software helps by:
- Unifying risk, compliance, audit, and resilience into a single platform to break down silos
- Centralizing documentation and audit trails, ensuring traceability and confidence for teams and regulators
- Providing early-warning signals via key risk indicators (KRIs), enabling proactive risk decisions
- Enforcing accountability with auditable workflows and task ownership
- Surfacing cross-functional insights, showing how vulnerabilities can impact multiple areas simultaneously
- Facilitating better board reporting, with dashboards that link risk posture directly to enterprise goals
- Reinforcing a culture of escalation, where risks aren’t buried but routed to the right people right away
Overall, software enables true enterprise risk visibility; not just a list of risks, but how they connect and influence business objectives across teams. For companies looking to build a risk-aware culture, technology can help integrate it enterprise-wide.
Compliance keeps you out of trouble; risk maturity drives performance. The difference can be foundational for your business. Organisations that choose to redefine their banking risk management as a strategic function are best positioned to lead with resilience and agility.
