**2. The Banking Business and the Importance of Risk Management Policies**

Financial Institutions' turnover is influenced by their risk management policies and the target risk profile they want to achieve in the market. For instance aiming towards a lowmedium predictable risk profile, jointly with geographical diversification can be key elements of differentiation for a firm to achieve a leading position ahead of other industry players. [1]

The effectiveness of Risk management policies enacts as a firm's identity card, specifically in downturn times. This largely explains why seeking continuous improvement of risk management policies has stayed as a top priority for key industry players which have shown positive growth in the last years of financial turmoil.

*"Risk Management means looking into the future"* [2]

© 2012 Marin de la Barcena, licensee InTech. This is an open access chapter distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2012 Marin de la Barcena, licensee InTech. This is a paper distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Fuelled by increasing competition, more stringent regulations and higher levels of interconnection amongst different players, the marketplace is becoming more and more complex. Concerned with such trend, financial institutions have realized that if they want to survive, they need to rely on a robust risk management framework, given by corporate organizational policies and supported by sophisticated IT systems and technology.

Strengthening Risk Management in the Midst of Downturn Times 317

literature, a good ERM program has proven to enhance the company value through reduced costs, decreased variability in financial results, enhanced market reputation, and improved business decision-making. Such dimensions can even be measured and what is more, the Credit Rating Agencies have started considering these factors as part of their company

Generally speaking, a robust risk management framework tackles five dimensions [9]:

Relying on strong corporate governance that diffuses a positive risk culture from the top to the bottom of the organization is an imperative to set up a robust risk management framework. Unless the employees of a firm are aligned and somehow willing to contribute towards improving risk management at their workplace, the organization will not be able to manage risk appropriately. The whole organization, from the last employee to the most powerful member of the Board of Directors should see some benefits in managing risk, and as long as this happens, a positive risk culture can be promoted across the overall

From another angle, a positive risk culture can also be understood as that which is characterized by individual accountability, creativity, transparency and honesty. As long as employees understand the importance of accomplishing the organization's risk management approach, have a clear view of what such policies mean and believe they are transparent and honest, they will feel more creative and a healthy attitude of constant challenging of decisions and ideas will arise from them towards improvement the

The second key element of a sound risk management framework is to have in place a set of policies and procedures, which are consistent with the organizational culture and clearly

In a simplified view, the output of a firm's risk management strategy is determined by the balance between the firm's commercial objectives (appetite for risk) vs. its risk contention goals (risk control). In other words, organizations look for profit maximization at the lowest

**3. Elements of a robust risk management framework** 

**3.1. Corporate governance = Positive risk culture** 

assessment process. [8]

1. Organizational culture

2. Processes 3. Technology 4. Risk measurement

5. Monitoring

organization.

management of risk at their workplace.

defined, with enough level of detail.

**3.2. Policies = Procedures** 

risk possible. (Figure 1)

Since 2008, financial markets have experienced sharp declines. [3-5]. Analyzing several consumer surveys allows us to conclude that consumers, particularly those who have been severely affected by the crisis, would rather have opted for higher levels of prevention and anticipation, supported by management schemes with enough level of risk management considerations. The aforementioned risk management considerations are playing a greater role in companies' overall strategy and strategic choices. Indeed, companies are increasingly realizing the need of relying on strong risk governance and a sophisticated hedging program. This trend is largely explained due to the fact that these are seen as essential elements of a robust financial risk management program that will help them secure resilience to the economic problems affecting the marketplace.
