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Aligning risk and the pursuit of shareholder value - Risk transformation in financial institutions | Whitepaper


Financial institutions of every type1 face continuing pressure from regulators on one side and shareholders on the other. Working to balance the former’s expectations for higher levels of capital and the latter’s for superior returns, senior executives and boards are focusing on improving risk management and governance and deploying capital more efficiently. Many leadership teams have reviewed their institution’s mix of businesses and pricing of risk with an eye toward enhancing margins, reducing costs, and increasing investor returns.

In the process, however, they have learned that ad hoc or piecemeal responses to regulatory changes and shareholder demands may not be equal to the challenges they face in areas such as capital, costs, economic conditions, and risk management. Globally, many banks are working to meet2 the Basel III capital requirements, and generally need to improve their risk weighted asset (RWA) usage. Worldwide economic recovery remains weak, negatively impacting lending and margins. Cost pressures drive the need to optimize head count and rationalize infrastructure spending while improving operating efficiency. Risk management requires strengthening as regulators scrutinize the conduct of business and raise the bar for monitoring, reporting, and mitigating risks.

These challenges impact senior executives and boards at banks, insurers, broker dealers, and other financial institutions across multiple lines of business. While global systemically important financial institutions (G-SIFIs) and SIFIs may be most affected, virtually all national and regional institutions also face similar challenges, if on a different scale.

These challenges demand shifts in management focus, from capital adequacy to capital efficiency, from capital intensive business models to more efficient and agile models, and from risk management as a corporate function to risk management as a discipline which is embedded across the enterprise and viewed as a strategic asset. In a corresponding (and necessary) technological shift, management should consider moving from bolted-on point-specific compliance “solutions” that add costs and headcount to responses that integrate financial, risk, and regulatory data streams. Capital efficiency demands data management and analytical capabilities equal to the goals of complying with complex regulations, embedding risk management into business processes, and increasing and sustaining shareholder returns.

As senior executives and boards survey the progress they have made to date and the challenges before them, the following questions frequently arise:

  • How, specifically, are regulatory and economic developments impacting shareholder returns, and how are they likely to do so in the future?
  • How can we provide the right information at the right time to the right people across the organization to enable them to make responsive, risk aware decisions?
  • How effective is our organization in terms of risk management and governance, and where do we need to improve?
  • What do we need to do to maintain regulatory compliance and confidence, and achieve strategic goals while controlling costs?
  • How do we pursue, sustain, and communicate an institutional risk profile that is responsive to both regulatory and investor expectations?
  • How do we drive risk management standards into the daily activities of the business units, on the desk and in transactions?

Questions like these may be impossible to answer without an organizing point of view. This Deloitte paper presents such a point of view. It also highlights some cornerstone issues that executives and boards should consider addressing in this transformative environment. We begin with an overview of forces now impacting key drivers of shareholder value at financial institutions.

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Laurent Berliner
Deloitte Luxembourg
Job Title:
Partner - EMEA Financial Services Industry Enterprise Risk Services Leader
+352 451 452 328



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