Page 24 - Risk Management Bulletin April-June 2022

RMAI BULLETIN APRIL - JUNE 2022

FINANCIAL

INSTITUTIONS AND

NONFINANCIAL

RISK: HOW

CORPORATES BUILD

RESILIENCE

F inancial institutions, especially banks, have buffer that banks need to hold in order to compensate

long been the leaders in developing advanced
for potential losses.
approaches to managing financial risks—credit
risk, market risk, and funding and liquidity risk. Financial risks are reflected in the financial positions
These practices advanced alongside efforts to create on banks’ balance sheets and result from their risk-
more systematic regulation, beginning with the first taking activity. Nonfinancial risks arise from the bank’s
Basel accord (1988). Basel II and Basel III followed in operations (processes and systems) and are similar to
the 2000s, and amendments known as “Basel IV” are risks faced by companies outside the financial sector
slated for implementation in 2023. In addition, annual (“corporates”). Over time, corporates have developed
stress-testing exercises are now required by various approaches to address nonfinancial risk while adapting
regulators. At the core of these approaches lies a approaches developed by banks to manage financial
fundamental understanding that risks can be risk, which corporates also face. We believe that
quantified and expressed in terms of an equity-capital financial institutions can learn from the experience of
corporates in managing nonfinancial risks. A cross-
Authors industry comparison can highlight promising
opportunities in key areas:
Björn Nilsson Y Digitization. As the banking industry moves rapidly
to digitize its business model, new risks will
Associate partner in McKinsey’s Stockholm office;
Thomas Poppensieker emerge, including cyberrisks, IT delivery risks,
business-continuity risks, as well as new model
Sebastian Schneider
risks from AI. Technology is the corporate sector
Senior Partners in the Munich office that has the most experience with these risks.
Michael Thun
Y Critical infrastructure. Banking is considered highly
Senior Expert.
critical infrastructure. Therefore, the industry
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