The challenges of effective risk management in significant banks : a local perspective

Abstract

Insufficient focus on risk management by banks could prove costly to them as evidenced by the financial crisis in 2007-2009. The obvious lesson is that banks need to strengthen the level of regulatory oversight by fine-tuning their corporate governance practices. Banking supervisors on the other hand must ensure that banks have the necessary risk management infrastructure and sound corporate structures so that their regulatory obligations are thoroughly and consistently implemented. In my study I intend to go over the main risks that Significant Banks face and also investigate how Systematically Important Financial Institutions (SIFIs) or Significant Banks are handling their risk management obligations. In this part, I will go through some of the main regulation that these banks are faced with mainly Basel 3, CRD IV and CRR. The other part of my study will examine the challenges that local banks may face when implementing the relevant regulation on risk management. In the process, I will be examining the above within the context of the main EU directives and regulations. One very important measure of the strength of the banking system is the quality and quantity of capital that banks are now obliged to set aside as a safeguard against potential times of crises. Research was carried out by means of interviews with a selected number of Banks and the MFSA, as the primary data collection method which was then analysed and discussed in Chapter 4. The results from the interviews show that all participants believe that it is important for banks to have specific regulation on risk management but the need to achieve an effective balance is also of paramount importance. When mentioning the size of Maltese banks some participants stated that the amount of regulation being faced with could prove challenging. Other participants stressed that the principle of proportionality when implementing regulation was equally essential.