Lessons learned from Lehman Brothers: Scotiabank

Despite the global financial crisis and taking a loss on Lehman Brothers, Scotiabank remained profitable in 2008.

Rick Waugh, the bank’s president and CEO, attributes the health of his bank to diversification, Canadian supervision and policies, and the bank’s solid risk management. So he said in his keynote address to the Economic Club of Canada at its risk management luncheon held yesterday in Toronto.

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He also stressed the importance of proper risk management, which he said requires a strong risk culture set at the top level.

“A strongly embedded risk culture forms the foundation for your policies, your processes, your models, which are needed to set limits, establish lines of responsibility and, of course, to align the right incentives.”

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Waugh also presented findings from a recent Institute of International Finance risk management report, which found that boards of directors at banks around the world are more involved in all aspects of risk than they were in 2008.

The report states more than 80% of chief risk officers now report directly to the CEO, which gives them greater access to business heads to discuss or challenge matters of risk.

The vast majority of firms (90%) have also made changes to how they manage liquidity, which Waugh highlighted as one of the most important lessons learned from the financial crisis. Firms are now increasing buffers of liquid assets that can be used in cases of emergency.

Despite these positive findings, he says there’s more room for improvement. Just over a quarter of firms, for example, feel they’ve embedded their risk appetite into their business, and only 37% stated a link between their firm’s risk appetite and its day-to-day operations.

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Overall, he insists financial institutions are working hard to improve their risk management.

“Developing and implementing a strong culture of risk involves changing the behaviours of often tens of thousands of people around the world,” says Waugh.

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This article was originally posted on citopbroker.com.