Silicon Valley Bank, Risk Management and our Crisis Management Webinar

Bank failures are always worrying; here at PRMIA, many of us remember some of these from the Great Financial Crisis. These had become case studies for the likes of our Operational Risk Management Certificate and Designation. But now with Silicon Valley Bank and indeed Signature Bank’s Collapse, we have seen two of the biggest bank failures in US history in just a few days.

It is hard to guess, what will happen in the coming days, but for now, we would like to share some ideas on the risk capacity and risk appetite of banks and other firms. Finally, we invite you to attend our (timely) webinar this week on Crisis Management with John Deverell, CBE .

Risk Capacity & Appetite

Before we can understand the risk appetite of a firm, we need to understand the risk capacity.

Based on the the Risk Framework chapter written by David Coleman in our "Risk Management Frameworks and Operational Risk Management" book,?we take a very definite view of this concept:

Risk Capacity in a bank would mean the ability to suffer an extreme event (likely to be low probability but certainly a very high impact event), which leads to losses from the planned risk profile that overwhelm net income and all but not quite exhaust capital. The entity would be capable of orderly wind down, with liquidity support, but would be unable to continue in business without recapitalisation.?

When we use this definition to test a candidate's understanding of risk capacity, we really hone in on the capital, liquidity and other aspects of this defintion. We are seeing some elements of this in the US response to the Silicon Valley Bank collapse - the Federal Deposit Insurance Corporation (FDIC) stepped in and established the "Deposit Insurance National Bank of Santa Clara" to re-open the Silicon Valley Bank's branches and enable access to insured deposits. Silicon Valley Bank was not allowed to get to a point where the collapse was overwhelming - the FDIC and other parties such as the US Federal Reserve were able to step in and use their "big guns" to stabilise the situation.

If you are interested in the related book / course, then go to the ORM certificate page here... we are about to launch an updated version of the certificate to include topics like Compliance Risk, Operational Resilience and Operational Risk Capital in a post Basl II era, but the same material is there for how to assess a firm's risk capacity - and thus manage the risk appeite.

BTW, the risk appetite is defined as another bank experiencing the same event as those that overtook Silicon Valley and Signature Banks but can continue with their business, recover profitability and repair damage to its reputation without the kind of intervention we saw this weekend.

Crisis Management

For now, many people are getting into "crisis management" mode - if you want to get a really quick primer on this, this you are invited to attend our webinar this week on Crisis Management with John Deverell, CBE .

This is taking place on Wednesday March 15th, and John has told us he will be weaving the Silcon Valley Bank and Signature Bank collapses into his webinar. Between his army career, his other work (including two years on the CEO's Executive Leadership Team in Invensys plc) and along the way being appointed OBE and subsequently CBE by Her Majesty for leadership in particularly difficult situations, I think there are few other people that I want to hear talk about Crisis Management.

We're also delighted to say that John will be joined by Michael Ferndale to present a related Crisis Management Course later this summer. Organized around Seven Principles for Crisis Preparedness and Crisis Management, the Advanced Leadership in Crisis Risk Management series addresses a variety of issues that can lead to a crisis if not handled in an effective and timely manner. Participants in the 6-day course will discuss these issues, explore potential remedies for each issue to avoid a major crisis, and learn the components that make up a crisis preparedness and management plan.

But if you are worried about Crisis Managment right now and want us to help you organise this for your bank or other type of firm, then contact our Business Development Direct Cheryl Buck and she will be happy to organise something ASAP for you.

Remember, adverse events will happen – it is just that the nature and timing may well be unforeseen – a poor or slow response will compound the situation and turn the adverse event into a crisis.?