54
Are the risks
taken by
banks socially
responsible?
The definition of risky behaviour is not
always easy. It is a fact that every fi-
nancial institution will aim for some
return so that it will be able to perform
its services fully and to achieve sus-
tainable growth. The higher it aims in
respect of return, the more risks it will
have to take.
The attention for efficient risk management
has increased steadily since 2008. In the first
place because the regulations for and the con-
trol of risk management have become much
stricter. Since the implementation, in 2006,
of the Basel II agreement on capital require-
ments for financial institutions, the supervi-
sors have paid increasingly more attention to
the risk profile or the so-called risk appetite
of lending institutions and investment firms.
They are trying to map out the risk profile of
an institution carefully and to raise the quality
of the risk management.
The National Bank of Belgium (NBB), one of
both Belgian supervisory authorities, has de-
veloped a range of instruments for this. There
is, for example, the
Internal Capital Adequacy
Assessment Process
or ICAAP where every
institution must work out an internal capital
assessment process and must lay down capi-
tal targets that correspond with its risk profile
and the quality of its internal control. This in-
ternal control is in the hands of the effective
management of a bank or investment firm.
They must report their assessment of the in-
ternal control to the NBB.
In the last few years, the financial institutions
have heavily invested in better risk manage-
ment, tighter internal control and better
reporting.
The number of staff in the Risk department,
which identifies, assesses and manages risks,
rose by a quarter (24%) between 2008 and
2011.
The number of people in Compliance,
the department that ensures that all rules
are respected within the institution, even
increased by 70%. Only in the Audit depart-
3.
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GOOD GOVERNANCE