Commercial Bank Risk Management: An Analysis of the Process

Throughout the past year, on-site visits to financial service firms were conducted to review and evaluate their financial risk management systems. The commercial banking analysis covered a number of North American super-regionals and quasi–money-center institutions as well as several firms outside the U.S. The information obtained covered both the philosophy and practice of financial risk management. This article outlines the results of this investigation. It reports the state of risk management techniques in the industry. It reports the standard of practice and evaluates how and why it is conducted in the particular way chosen. In addition, critiques are offered where appropriate. We discuss the problems which the industry finds most difficult to address, shortcomings of the current methodology used to analyze risk, and the elements that are missing in the current procedures of risk management.