The Wall Street Journal has a great piece on the growing prominence of chief risk officers: “After Crisis, Risk Officers Gain More Clout at Banks”. According to the piece, risk officers now have more say and are earning more for it, as much as 40 percent more than just a few years ago. Our recent research supports this:
- Ninety-seven percent of banks with more than $1 billion in assets now have a chief risk officer (even though many of these institutions aren’t required to have one).
- Risk executives accounted for almost 60 percent of hires in 2013, at banks with more than $5 billion in assets.
Perhaps due to the increased prominence of the CRO, many bank boards feel that they can breathe a little easier when it comes to matters of compliance and risk management. In the 2014 Compensation Survey, we asked about the top compensation-related challenges that face bank boards today. Just over the course of the last year, the percentage that indicate that understanding and complying with regulations poses a challenge fell dramatically, from 41 percent in 2013 to 22 percent this year, a drop of almost 50 percent.
It should be noted that the decline in bank boards concerned about compliance was not as pronounced among banks with more than $5 billion in assets (though there was still a significant drop, of 16 percent). But perhaps this isn’t surprising, as the regulatory focus falls more on these banks as they approach the $10 billion threshold laid down in the Dodd-Frank Act – so the focus on risk will always be more heightened at these organizations.
Risk culture, and the board’s role in it, still has a ways to go. Less than half of bank boards regularly meet with their chief risk officer, so not every CRO has a seat at the table. But for many financial institutions, risk officers are gaining more prominence and playing a greater role in the strategic direction of the bank.
- 2014 Compensation Survey
- 2014 Risk Practices Survey
- “Handling Risk in the Modern Age”, Bank Director, 2nd quarter 2014