ERM【全面风险管理】 Definitions

ERM is a comprehensive and integrated framework at the top of enterprise for managing the entire portfolio of risks in order to achieve business objectives, to minimize unexpected earning volatility, and to maximize firm value.

ERM是一种全面、综合的框架，处于企业的管理层次体系之顶端，旨在管理整个风险组合，以实现业务目标，最小化盈利的波动，并最大化公司价值。

Focus on the threats to a firm.

The Benefits of ERM

Helping firms define and adhere to enterprise risk appetites
Focusing on most threatening risks
Identifying enterprise-scale risks generated from business lines
Managing risk concentrations across the enterprise
Managing emerging enterprise risks (e.g., cyber risk, AML (anti-money laundering) risk, reputation risk)
Supporting regulatory compliance and stakeholder reassurance
Helping firms understand risk-type correlations and cross-over risks
Optimizing risk transfer expenses in line with risk scale and total cost
Incorporating stress scenario capital costs into pricing and business decisions
Incorporating risks into business model selection and strategic decisions

Implementation of ERM

Risk Culture

Can be defined as the norms and traditions of behavior of individuals and of groups within an organization that determines the way in which they identify, understand, discuss, and act on the risks the organization confronts and the risks it takes.

Risk culture is a difficult to address because it is multilayered.

Key risk culture indicators

Leadership tone,
Accountability and risk monitoring,
Openness and effective challenge,
Risk-aligned compensation,
Risk appetite knowledge,
Risk literacy,
Risk information flows,
Risk/reward decisions,
Risk stature,
Escalation and whistle blowing,
Board risk priorities,
Action against risk offenders,
Risk incident and near miss responses

There are several problems standing in the way of a robust risk culture.

 Risk indicator or risk lever?

 It’s a lot easier to manage (or manipulate) an indicator than it is to

manage risk culture.

 Education for everyone?

 Time and space

 Empirical evidence suggests risk culture is mainly formed in the local

business lines.

 Culture cycle

 Arguably, it is only during times of stress that the enterprise’s real

risk culture becomes visible

 Curse of data

 massive amounts of data

Scenario Analysis

 Scenario analysis must be unfolded over several quarters.

 Scenario analysis drives a series of interlinked factors covering a variety of risks.

 The risk variables are not static.

 Banks can adjust their capital planning with the scenario’s results.

 Imposing a standard set of scenarios on the biggest banks allows regulators to see systemic effects and to compare bank risk exposures.