Wharton@Work

March 2016 | 

Managing Risks in Financial Institutions

Managing Risks in Financial Institutions

In the aftermath of the global financial crisis, risk managers face an environment of heightened regulatory oversight and increasing expectations that they move beyond a single area of risk focus to understand enterprise risk.

For the last nine years, Wharton and the world’s leading risk management association, RMA, both located in Philadelphia, have offered an advanced risk management program for these leaders, many of whom are being groomed for senior roles such as chief risk officer of their organization.

The RMA/Wharton Advanced Management Program has attracted more than 200 risk managers, often “specialists” who want exposure to other forms of risk, whether it be credit, market or operational. Participants use the latest tools for modeling risk analysis, critical thinking, and risk scenario planning and apply knowledge and risk evaluations to current issues facing their organizations.

Combining Theoretical with the Practical

“What's unusual about this program is the integration of academic analytics, which provide students with a theoretical foundation, with the insights of star practitioners, who show how these ideas can be implemented,” says Richard Herring, program faculty director and the Jacob Safra Professor of International Banking at Wharton.

According to Herring, the environment of risk management has "become much more complex and risk managers face much higher expectations regarding their analytic and management skills."

Herring is assisted by co-instructor Gene Guill, managing partner at GPS Risk Management Advisors LLC and former managing director in Deutsche Bank’s Corporate Banking & Securities Division. “The program is an effective means for risk managers to broaden their understanding of risk categories, sharpen their management skills, and prepare for additional responsibilities in their institutions,“ says Guill.

New Focus on Cybersecurity, Supervisory Stress Tests

New to the 2016 program will be sessions on fraud and cybersecurity, problems that have grown dramatically in the last few years, and a greater emphasis on supervisory stress tests designed to show regulators that an organization can meet its regulatory requirements even under several quarters of severe fiscal stress.

Mark Zmiewski, director of enterprise risk at RMA, says, “The richness of the program is due to the diversity and the quality of the participants in terms of different backgrounds, different experiences, different stages in their careers, representing different geographies, and that creates a warm and engaging atmosphere that lends itself to learning.”

Learning from Industry Practitioners

This spring’s cohort will hear from 22 guest lecturers from financial institutions, including Elizabeth Mays, EVP, chief model risk officer for PNC Financial Services. Mays started out as a participant, but became an instructor shortly thereafter. She initially attended sessions on credit risk, market risk, operational risk and capital planning. She believed that because models are so important to the way banks operate today, and model risk management is such a focus for regulators, the program should include a session on this discipline as well.

Her session will help participants understand the problems banks can encounter if they don’t manage their models well. Understanding how models are constructed and the fact that they can never be perfectly accurate predictors should caution participants to avoid using them unquestioningly.

Mays says the Wharton program is a valuable opportunity to get away from work and spend two solid weeks learning about multiple areas of risk management, and network with other risk professionals to compare practices across banks.

Many institutions consider the program a smart investment in people development. Mays is one of 25 PNC executives have gone through the program since its inception, accounting for approximately 11% of the total participants in the program.

“This program [is] a tremendous development and retention tool,” says Thom Whitford, former EVP and chief risk officer for PNC, and an original framer of the program. He notes that the Wharton/RMA program has delivered an impressive ROI in terms of building depth and experience on his team, with many participants going on to more senior roles. “It’s a world-class program that balances the quantitative with the qualitative, the theoretical with the practical,” he concludes.

Stephen Krasowski, a writer and contributing editor for The RMA Journal, contributed to this article.