Governance is defined as the way in which a company is controlled, through principles like the equitable treatment of shareholders, the protection of the interests of stakeholders, the ethical behaviour of the board, and the transparency and accountability of both management and the board. It is at the centre of any complex management system which enables a financial institution to function, a system which becomes even more complex when the corporation or company in question is a bank. Such institutions have huge numbers of people sharing in both risks and rewards, thereby implicating many more people in its decisions and potential losses.
A methodology which puts the relationship between risk management and governance at the centre of banking best practice has not yet been established. Risk and Governance: A Framework for Banking Organisations articulates the necessity of devising a new system of risk management which can cope with extreme conditions, examining the intrinsic limitations on governance, the role and evolution of risk management, and the strategies for best practice. Sergio’s contention is that risk management must become the key function of governance and the responsibility of the Board.
This book details the confluence of risk management activities and corporate governance mechanisms in modern banking into one integrated practice. It argues that the two processes, thus far confined respectively to the boardroom and to the back office, are inextricably linked, that their goals are complementary and that one cannot function without the other.
Risk and Governance: A Framework for Banking Organisations analyses the evolution and current thinking behind corporate governance, the rationale behind risk management - how it functions, why we need it, all potential risks faced by banks and the current models used to contend with them – and the necessity of using new models and strategies for banking best practice and corporate governance.
Key chapters include:
The Nature of Corporate Governance in Banking
The Mission, Organisation and Governance of Risk Management
Operations Risk in Extreme Market Conditions
Managing Reputational Risk
A Framework for Risk-Bearing Governance
Risk and Governance: A Framework for Banking Organisations is essential for anyone involved in the organisation and management of risk in a banking environment, from board members, directors, risk managers and regulators, to auditors, consultants, practitioners, and senior members of staff with the power to make strategic decisions.
- Book 9781782720195 / EBook 9781782720270
- Publish date
- 26 Apr 2013
- 155mm x 235mm
Table of contents
Risk and Governance: A Framework for Banking Organisations
Introduction: The Confluence of Risk and Governance
Part 1: Corporate Governance in Banking
Chapter 1: Corporate Governance, Information and Control
Chapter 2: The Nature of Corporate Governance in Banking
Chapter 3: Regulation and Governance
Part 2: Modern Risk Management
Chapter 4: The Mission, Organisation and Governance of Risk Management
Chapter 5: A Cartography of Banking Risks
Chapter 6: Operations Risk in Extreme Market Conditions
Chapter 7: Managing Legal Risk
Chapter 8: Managing Reputation Risk
Part 3: Current Practices in Banks
Chapter 9: Drawing Boards: Motivations and Responsibilities in the Boardroom
Chapter 10: Executive Compensation: Performance, Regulation and Ethics
Chapter 11: Fair Value, Auditing and Internal Controls
Chapter 12: A Framework for Risk-Bearing Governance
"In his book, Risk and Governance – A Framework for Banking Organisations, Sergio Scandizzo tackles a subject that could be seen as relatively dry and technical, yet also is very topical in view of the intense debate about new bank regulations following the 2008 credit crisis. He expounds his subject with his customary charm, insight and historical perspective. Readers of his other books will recognise familiar philosophical references, whilst also finding within the accessible 200 pages a wealth of useful new material, both theoretical and practical.
The theme of the book is the confluence of risk management activities and corporate governance mechanisms, and how these interlink in modern banks. Mr Scandizzo has advice for risk managers, auditors, regulators and other specialists, but above all he addresses boards of directors. He concludes that a re-think of financial risk management is required, focusing on the survival of the organisation and of the wider financial system. He calls for greater awareness from bank boards of all stakeholder needs, not just those of the shareholders.
The introduction begins in a novel way. Relating risk and governance to the perils of shipping and the sea, Mr Scandizzo takes us back to Ancient Rome and an episode in the life of Virgil’s hero Aeneas. Following this surprising start, the first main section of the book gives a brief tour of the essentials of corporate governance and how this has evolved in banks. This is followed by a longer section on aspects of modern risk management, including chapters on how to manage legal risk and reputational risk, which I found particularly helpful since they are of increasing importance yet seldom covered well in risk textbooks. The final section of the book is a wide-ranging survey of current practices in banks, covering topics such as the composition of boards, performance incentives and compensation, accounting and auditing issues, regulatory regimes, risk appetite and how best to report risks. The role of the bank’s board in all these matters is continually emphasised.
Naturally, as readers of Mr Scandizzo’s other books will expect, there is a strong operational risk focus, but this is very much in keeping with the theme and indeed the overall direction modern risk management is taking. Those of us who, as CROs, are charged with developing frameworks across all risk types, will find this book an excellent addition to the current literature on the subject, mixing compelling theoretical argument with a number of really useful practical tips and suggestions. I can thoroughly recommend it."
Peter Harlow, Head of Risk at the ESM (July 2013)
"Governance and Risk, two hot topics increasingly included in the Board of Directors’ agendas for most entities in the world, are the subject of this book. While external stakeholders, globally and across industries, are firmly asking directors, senior executives and staff to show accountability for their organisation’s ability to achieve or not its objectives, this book focuses on banking organisations and introduces a framework based on five principles that can be extremely useful to those who want to cut to the chase to meet increasing regulations, and instead, position their organisation in the path to long term sustainability based on sound and strong governance and risk management.
Laying a foundation on recognised concepts, frameworks, best practices, and fresh insights of significant events around recent crises, the framework proposed herein considers corporate governance and its links with risk management, discussing their relationships with positive motivation and recognition of responsibilities in the boardroom, executive compensation and internal controls. The framework introduced in this book is founded on more than a decade of experience of the author, Sergio Scandizzo, in risk management, along with his wide insight from previous books, publications in many journals, and his current position as Deputy Advisor at the European Investment Bank in Luxembourg.
Sergio Scandizzo emphasises the strong leadership roles of directors and senior executives of banks nowadays tagged systemically important ( part of the systemically important financial institutions – SIFIs), that through their actions have guided their organisations in and out of distress, and knowingly or not, impacted the present and future of society as a whole.
The book is divided in three parts:
Part 1: Corporate governance in banking This part covers three chapters. Chapter 1 discusses banking governance, agency theory conflicts and stakeholders’ perspectives. Chapter 2 reviews literature about the nature of the firm, management/owners separation, and the development from agency theory to stakeholders’ theory. Chapter 3 outlines the major changes in laws and regulations following the financial crisis of 2008–09 and its impact on the governance of banks.
Part 2: Modern risk management This part covers five chapters. Chapter 4 reviews the objectives and internal organisation of the risk management function. Chapter 5 introduces concepts and methods to map banking risks. Chapter 6 looks at risks to the operations of banks when the market conditions depart from doing ‘business as usual’. Chapters 7 and 8 present a framework to identify, assess and manage two risks critical for survival, but seldom approached in a systematic way: legal and reputation risks.
Part 3: Current practices in banks This part covers four chapters. Chapter 9 looks into the board of directors’ motivation, objectives and performance in the current post-crisis regulatory environment. Chapter 10 discusses executive compensation, an issue that according to the author is perhaps overstated, though sensitive. Chapter 11 reviews accounting, external auditing and internal controls in their corporate governance roles. Chapter 12 describes the framework of the five principles that Sergio Scandizzo refers to as: ‘Risk-bearing governance’.
In 207 pages, this book provides theory, arguments, insights, analyses and vision, delivering the essence of a governance and risk management framework that ensures long term sustainability. There are two basic approaches to long term sustainability of organisations: one is to merely follow increasing regulations and ensure compliance, wherever that may take you, and the other is to take control by adopting a governance and risk management framework that ensures sustainability aligned to your organisation’s objectives. If you choose the latter, you must have this book in your organisation’s library and your personal bookshelf."
Taken from a review in the Journal of Risk Management in Financial Institutions by Gustavo A. Torres G., Actuary, Finance and Risk Management Consultant Coro, Edo. Falco´n, Venezuela