Play #6 - Why Do Chief Risk Officers Get the Rodney Dangerfield Treatment?
For those of you too young to know about the legendary late-night comedian and Caddyshack movie star Rodney Dangerfield, here is a quick clip of his most famous tagline, lamenting how he gets "no respect”. I decided to spare you from another clip showing over 100 moments where Rodney uttered his famous grievance!
A recent Wall Street Journal Article struck a nerve on how the Chief Risk Officer(CRO) role is the most thankless job in banking. The stunning disregard of risk management by Silicon Valley Bank (SVB) is magnified by the eight months of last year the Bank went without filling the vacant Chief Risk Officer position. SVB’s risk culture seemed so bad that one wonders if the CRO had been in place would they have paid attention to the risk management problems staring them in the face? Ignoring a simple, but fatal mis-alignment of asset and liability duration smacks of arrogance combined with no real internal or external accountability.
The risk management culture in the Mortgage Banking industry is often no better. It’s an industry that seems to always revere sales volume first. Understandable when its mostly led by individuals with a sales pedigree. The result is an industry that revels in the good news, while not wanting to pay much attention to risk and controls. We certainly should value a strong sales mentality because without the ability to get business there would be nothing to manage. But ensuring, much less appreciating the benefits of a strong risk management team and quality control process is quite often viewed by leadership as a necessary evil to keep regulators happy. I briefly advised a large originator whose CEO did not even know he was on the distribution for the monthly QC reports much less know how his loan quality was performing. This lender was headed for the exits even before volume cratered in the industry.
But whether it is with a carrot or a stick, senior management must be held accountable for proactively engaging with risk. Try this simple one question test with the CEO and non-risk management team: “How has our significant defect rate performed in relation to target over the last six months?” If they can’t answer that question, ask your board, if you have one, or outside auditors to recommend that quality control metrics be included in executive compensation decisions going forward. If their compensation is on the line, they will nail the question the next time you ask. SWS Risk Advisory LLC helps lenders build a culture and accountability framework to ensure proactive risk management leadership. Take our short 15 Question Risk Culture Self-Assessment to help you spot areas of cultural strength and weaknesses. The Self-Assessment highlights whether your risk management function truly has an independent and impactful voice in the company. Don’t make your CRO the most thankless job in mortgage banking.
And for your amusement here is a priceless clip of Rodney entertaining President Reagan.
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