"There's no such thing as too much capital."
That was the sentiment offered by Rob Cox of Reuters Breakingviews, in a column discussing the efforts financial risk managers should have taken to prepare for last week's Hurricane Sandy. While local governments along the East Coast prepared for the storm by ordering evacuations and making critical decisions on infrastructure, banks and other financial institutions likewise needed to ensure their own security by building solid capital to protect against financial ruin.
Those with a reliable risk management framework were likely better prepared to weather the storm – literally and figuratively, wrote Cox.
"Like hurricanes and perfect storms, the only thing predictable about banking crises and financial panics is that they will definitely happen again," wrote Cox. "Any belief to the contrary creates a false sense of complacency into which arguments about reducing defenses – or in the case of banks, relaxing capital standards and regulations – find their most welcome reception."
Building capital reserves and preparing for threats with risk management software
In the wake of Hurricane Sandy, many financial institutions were presented with an opportunity to reevaluate their existing risk management framework to uncover gaps in insurance coverage, shortcomings with disaster recovery planning and general areas of weakness with regards to risk preparedness.
It remains to be seen if more banks jump on that opportunity. A study this summer from the American Institute of Certified Public Accountants showed that while many businesses recognize the need for a sophisticated risk management framework in today's risk averse culture, fewer than a quarter of respondents had actually taken steps to implement new software or technology capabilities that would help them achieve that goal.