All banks and credit unions can benefit from enterprise risk management, from small community institutions to the largest financial institutions. The Enterprise Risk Management (ERM) framework identifies, assesses, and manages enterprise risks. It includes financial, operational, strategic, and compliance risks.
The ERM approach is not only beneficial for large banks; it can also benefit small and medium-sized companies. The fact is, smaller institutions may have more difficulty implementing an ERM program, since they typically have fewer resources available. By implementing an ERM program, smaller firms can maximize their limited resources and maximize their risk management efforts.
An enterprise risk management program might be beneficial for banks and credit unions for several reasons:
ERM can provide insights into the bank’s or credit union’s risks that would otherwise remain unnoticed by taking a holistic view of all risks. With this comprehensive view, senior management will allocate resources more efficiently because of this comprehensive view.
The ERM system can help break down silos between various risk management functions, such as lending, compliance, and audit, in order to improve communication and collaboration. By doing so, they can achieve better communication and collaboration among these functions, which can make the institution’s risk management efforts more effective.
ERM helps streamline the risk management process by identifying duplication of effort and unnecessary steps. This can make resources more efficient and effective.
Because regulations are increasing their emphasis on enterprise risk management, banks and credit unions may have to implement an ERM program in order to meet regulatory requirements.
ERM can help senior managers make informed decisions about how to allocate resources by providing a comprehensive view of all risks facing the organization.
A risk management program can protect and enhance shareholders’ value by identifying and managing risks that could impair it.