Risk management is the identification, quantification, and proactive management of risks—and it is a key factor for value creation in all industries. Given today’s unstable two-speed economy, every business needs to evaluate and improve its risk-management capabilities.
In financial services, the greatest risks include credit risk generated by lending activities; market and counterparty risk generated by trading activities (notably, derivatives trading); liquidity risk generated by mismatched assets and liabilities; operational risk caused by error and omission in core systems and processes; and the risks associated with writing insurance contracts for objects, businesses, and people.
Given the effects of the financial crisis and today’s market and economic environment, financial institutions must answer some important questions:
How can an institution efficiently manage and employ its financial resources (funding and liquidity, capital)?
How can the effectiveness of risk management be improved? What requirements does this imply for governance, systems, and infrastructure?
What is the impact of new regulatory requirements (such as Basel III, Solvency II, and International Financial Reporting Standard 9)?
How can an institution identify the most important risks it faces—and how can they be made transparent and managed?
Over the last decade, BCG has built a robust global team of risk experts. The team covers all major financial centers, including Frankfurt, London, Paris, Hong Kong, and New York, as well as all major risk domains: regulation, analytics, governance and organization, culture and process, and systems redesign. Naturally, our risk expertise also dovetails with BCG’s core competencies: planning, steering, and strategy for senior executive management.
Our Risk Management practice has five main areas of focus:
Office of the Chief Risk Officer. Defining a conceptual framework and organization for the steering of funding and liquidity, capital management, definition of risk appetite, integrated management of risk and return, and risk disclosure and reporting
New regulation. Assessing the impact, and supporting the implementation, of new regulation on business models and products
Risk operations excellence. Defining and applying a target operating model and organization for a risk function
Risk mitigation. Defining portfolio optimization and portfolio management measures; creating transparency on critical portfolio risks; and implementing portfolio restructuring strategies
Risk information technology. Assessing the functionality and performance of the risk IT infrastructure, and defining a strategic risk architecture