Integrating Risk and Finance in the Bank Budgeting Process
Posted: 25 February 2011 | Source: SAS
The holy grail of banking is the 360-degree view of the customer that provides usable information in helping banks transform themselves from “earnings quantity entities” to “earnings quality entities.” The ability to incorporate risk measurement into all levels of customer interaction is paramount to getting there. The first step is the integration of risk and finance, which provides backward- and forward-looking views of profitability.
The forward-looking view as discussed in this paper looks at the typical banking budgeting and planning process, and provides some ideas on how to make the process of collaboration between risk and finance more integrated.
The planning and budgeting process consists of four distinct parts:
- Planning – where executive management provides guidance.
- Budgeting – where the guidance provided becomes defined in terms of targets.
- ICAAP1 – which participates (or should participate) in the process to define riskadjusted targets and forecast capital.
- Reporting – which includes tracking budgets to actuals and reporting on performance.