Bank failures in the news: Why compliance and risk management are crucial

“In an everchanging and dynamic regulatory landscape, the ability to use regulatory metrics further constrains the internal risk management system and ensures regulatory compliance at all times while optimizing it from a risk perspective.”

Internal audit also plays a critical role because it contributes to the effectiveness of a bank’s governance practices. Banks need to provide internal auditors the necessary tools and access to the data, so they can objectively assess risk management and control processes across the organization.

Lenders can capture insights into their loan portfolios and create a risk appetite statements (RAS) structure for managing those assets more effectively. Here, data plays a key role because it can help better calculate secured lending risk exposure.

Artificial Intelligence (AI) and other automation tools can help financial institutions better understand the nuances of their secured position and empower them to make more informed decisions.

Also, corporate legal departments can help companies ensure business continuity with key measures. Legal counsels can complete thorough due diligence into the health and stability of a bank. For example, legal experts point to the power of diversification for businesses. Now is the time to take action. An organization should not have all its money tied up in one bank, but should keep several accounts in separate banks. Also, the overall balance across all accounts in an organization’s name at any one FDIC-insured bank should stay below a $250,000 balance. It’s important for a company to evaluate how much money it needs for liquidity, then consider depositing any additional funds in short-term investments.

What are possible responses to a bank failure?

“What we can point to in the early days of these developments is that regulators and major banks are collectively working to stem further losses and instill confidence." In fact, Burniston expects “more positive measures by regulators and the industry to address and calm the current turbulence in the industry.”

The key points to remember are that it’s impossible to predict a bank failure, but it is possible to look for red flags and assess risks – and, most importantly, to take steps to mitigate the risks in case of a bank failure. If you need help with any of the above points, our Wolters Kluwer team of experts is here to help. For more information, check out insights and resources through the links below and to the right.