Risk Management for Community Banks
ABA Bank Compliance (08/00) Vol. 21, No. 7 p.3-16; Bonkofsky, Mary Lou

Every action a bank takes involves some risk, so risk management is essential to the operation of a bank. The first step in a good risk management process is the creation of a risk management policy that states the commitment and objectives of the process and fits the bank's culture and organizational structure. Accountability should include all of the management team. A bank risk manager must educate the bank's board of directors about risk exposure and tolerance, but a presentation to the board should be concise and should avoid overly technical terms. When educating executive managers, use examples to make points about preventive risk management. Once a risk manager has the endorsement of senior management, the next step is to assemble a team. Hold periodic, short meetings to discuss issues of interest to all or most of the group, and keep other issues for smaller meetings. A risk manager is not an expert about every part of the bank's operations. Risk managers should give team members the tools they need to manage risk in their business lines. Tools can include a board schedule of actions; the executive sponsor matrix for examiner review and internal communication; complaint monitoring; a compliance management accountability network to determine who has responsibility for each product and business line; corrective plan action to monitor exam findings and review audits and criticisms; compliance and legal alerts; and regulatory activities announcements to disseminate information.

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