Integrated Approach Key to Effective Risk Management
WASHINGTON, D.C. — Improper risk management is one of the greatest risks lenders face.
A decade ago, financial institutions started to break down lending silos. Banks revamped systems and technology so they could identify which auto loan customers also held mortgages, credit cards, or other loans. That total credit picture enabled lenders to better service customers and to more accurately predict delinquency trends. Today, that approach has filtered down to risk management.
“One of the most dangerous things we can do is put risks into silos,” said Robert Selvaggio, senior vice president and head of risk analysis at Fidelity Investments, during a panel discussion at the American Securitization Forum conference this month. “Credit risk can lead to financial ruin. Market risk can lead to financial ruin. Reputation risk can lead to financial ruin. It’s important to understand that all of these risks are integrated.”
One of the major challenges for risk managers is to balance the risk of ruin with the risk of underperformance. “Trading desks will worry about underperforming, but not necessarily worry about whether they’ll blow up the whole company,” said Mark Adelson, chief credit officer at Standard & Poor’s.
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