Banks' risk management: from business function to transversal function

Risk management, i.e. identification, assessment, and prioritization of risks, is a crucial process in a bank. The most important goal of this process is to secure the repayment of the amounts deposited and, more generally, it affects the ways in which management intends to create value and distribute it to its shareholders. The greater or lesser intensity with which the risk is managed impacts the satisfaction of some stakeholders rather than others. As recent scandals suggest, managers’ selfish behaviour extracts value from other stakeholders by engaging in risky activities which jeopardize company’s survival. The above mentioned pathological events have been characterized by a weak corporate governance, both internally (internal auditing) and externally (market authorities). Stakeholders’ reaction has been a lack of confidence in managers, creating a "market failure" that has strongly influenced the functioning of the global economic system. Monetary authorities and governments intervention to counter such phenomena were necessary but very costly. In the absence of strategies for economic growth, the liquidity injected into the market and the increase of budget deficits of the states, have triggered fears about the adequacy of monetary and economic policies. The recent crises in the sovereign debts are the bitter response of the financial markets on the government economic policies. Given the above, responsible managers have to match risk and return with the identification, assessment, and prioritization of risks borne by coordinated and efficient allocation of resources to minimize, monitor, and control the probability and/or impact of unfortunate events. Nowadays more than ever the banking system has to engage in risk management that invests all the aspects of the bank and is not confined, as in the past, within a single organizational function.