In the financial industry, risk is a part of doing business. Any banking expert will tell you that in order to reap a financial reward, one must take some kind of risk. Otherwise, we’d all be stuffing our money in mattresses. Still, the kinds of risks taken by the major banks during the U.S. financial crisis were too large, and resulted in a blow to the economy.
The Office of the Comptroller of the Currency (OCC) proposed a series of guidelines that are designed to accelerate enforcement actions. These guidelines outline how federal regulators expect the largest banks to proactively deal with major risks that could cause another financial crisis.
These guidelines would require banks with more than $50 billion in assets to detail their risks and use that information to plan business strategies. Too much risk would result in the OCC using that information against the banks if it comes to enforcement actions.
Other requirements include the separation of risk management and audit offices, with each one reporting to the CEO; a way for individual units to measure their own risk limits and report excessive risk to the board; and the appointment of independent board members from outside, who will be trained to understand risk.
The financial crisis was a major blow to the economy, of course, so any actions taken to prevent a similar event are a step in the right direction. Compliance officers in these banks should take these guidelines to heart, as they represent reasonable and actionable items that can help manage risk while still allowing banks to take steps to make big money.
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