In the past, risk officers at major American banking institutions were just one voice in a loud, busy conversation. Today, these professionals have much greater clout—and they are wielding it to significant effect.
"Five years ago, if the risk group recommended against a strategy or product, it might just be one part of a debate," Michael Loughlin, Wells Fargo's chief risk officer, told the Wall Street Journal. "Now, when we say no, it's usually no."
The risk management teams of major institutions have become the dark horse of the financial industry. In just two years, Wells Fargo expanded its core risk-management department from 1,7000 employees to 2,300 employees today, while the company's overall workforce has remained constant, the Wall Street Journal reports.
These changes represent an enormous investment, but most banks are eager to advance their risk management strategies, despite having little say in the matter. The Federal Reserve and the Office of the Comptroller of the Currency (OCC) have mandated that the major U.S. banks must all have a chief risk officer and a risk committee on the company's board of directors. Although these institutions have until 2016 to comply, the source reports that the major players have already implemented the majority of the required changes.
This illustrates the trend towards developing stronger risk-management policies and culture in the industry. The OCC released a report showing risk officers earn as much as 40 percent more than in previous years, as organizations try to tempt the best and brightest into the field. In the past, risk management was shunned by top-performers eager to climb the corporate ladder, with salaries averaging a third less than other executives. Now, the WSJ reports that risk management is augmenting their staff at a rate of 15 percent a year.
As a result, the banking industry shows decreased vulnerability. According to the source, five of the largest banking companies' combined equity capital, a buffer against possible losses, has grown 19 percent since 2013, to $792.83 billion.
While the economy continues to improve, market analysts and consumers alike can be comforted by the work and increased presence of risk officers striving to ensure that we don't repeat the decisions that led to the original recession.