Creating a robust risk management program, and integrating it with broader corporate strategy, is a critical challenge for banks and should be top of mind for boards and management, increasingly so in the emerging regulatory environment. Boards and bank executive teams need to look afresh at their risk appetite program to ensure it supports broad bank growth and business strategies.
A risk appetite program is difficult to develop and challenging to embed throughout the organization. It is highly scrutinized by regulators and external stakeholders, who increasingly expect banks to formally document their risk objectives, integrate risk management with wider strategy and clarify the intersection between risk-taking and risk-mitigating objectives. A risk appetite statement is highly dependent on data and requires scarce capital to implement.
This paper Developing a strong risk appetite program describes several challenges associated with risk appetite program development, technical constraints associated with implementation and some commonly deployed solutions.