General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
April 10, 2018

Danièle Nouy of ECB spoke at the International Conference on Banks’ Risk Appetite Frameworks in Ljubljana. She defined the risk appetite framework and explained how to judge the quality of risk appetite frameworks. Then, she discussed the current state-of-play regarding the risk appetite frameworks of banks and discusses the improvements banks need to make in their frameworks.

Ms. Nouy explains that the risk appetite frameworks should be comprehensive, effectively governed, consistently used, and fully integrated into strategic decision making. After explaining the expectations from banks, she moved on to highlight the progress made by banks. She added that the risk appetite frameworks of banks are now better structured and subject to clearer governance. For instance, most banks have clarified the role of the relevant stakeholders involved in the risk appetite framework. Moreover, in many banks, internal auditors have reviewed the effectiveness of risk appetite frameworks. Many of these frameworks cover a broader set of risks than before. Most banks go beyond the regulatory minimum to define metrics that are more suited to their business models. Ms. Nouy believes that, despite this progress, banks need to improve their frameworks and then points out four things that banks need to work on:

  • Non-financial risks should be better covered (and not be completely left out). If a bank cannot put concrete numbers to these risks, it should at least use qualitative statements.
  • The governance of risk appetite frameworks must be further improved. Boards need to play a bigger role in the definition and review of risk appetite frameworks.
  • Banks must use risk appetite limits as a tool to monitor their risk profiles, keep risks in check, and set the right incentives for the organization.
  • Banks need to embed risk appetite frameworks in their strategic processes.

She emphasizes that banks need to take a holistic approach to risk culture and risk management, including risk appetite. “These things need to be perfectly attuned. And they need to be in harmony with the rest of the organization—with the business model and with remuneration schemes, among other things. This framework needs to be an integral part of the decision-making process.” She added that most banks do not use risk appetite limits and statements as tools to facilitate discussion at various levels of the organization. They need to change this approach and create better incentives for complying with risk appetite frameworks. “Here, the tone from the top plays a crucial role. It is those at the top who have to promote a sound risk culture—by putting it into practice, by acting as role models. The board and the senior management must define values and set expectations for the risk culture. The board in particular must challenge the senior management and so ensure that each and every strategic decision is based on a sound risk analysis. Moreover, having a sound infrastructure for risk data would make this easier to achieve.”


Related Link: Speech

Keywords: Europe, EU, Banking, Risk Appetite, Risk Management, Governance, ECB

Related Insights

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473