Enterprise Risk Management at Royal Bank of Canada
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Case Details:
Case Code : ERMT-017
Case Length : 13 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Royal Bank of Canada
Industry : Banking
Countries : Canada
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts
Overview of Risks
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RBC had identified the following priorities for its risk
management function:
• Enhancing communication on risk and risk appetite throughout the organization
• Aligning the risk management function with the business segments
• Investing in capabilities to measure, understand and manage risk better
• Strengthening the efficiency, accessibility and responsiveness of key risk
processes and
practices
• Attracting, developing and retaining a team of highly performing
professionals...
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Organizational Structure
The Board of Directors and Group Risk Committee
The top level of the risk pyramid comprised the Board of Directors, the Conduct
Review and Risk Policy Committee and Group Risk Committee...
Economic Capital
RBC viewed Economic Capital (EC), as the level of capital necessary to cover
risks consistent with the bank's desired solvency standard and debt ratings...
Credit Risk
RBC communicated its policies and procedures, throughout the organization to
guide the day-to-day management of credit risk exposure. RBC attempted to reduce
exposure to non-core corporate client relationships while increasing the size of
the consumer portfolio, including residential mortgages, which had very low loss
rates...
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Market Risk
The level of market risk to which RBC was exposed varied
continually, reflecting changing market conditions, expectations of
future price and market movements and the composition of trading and
non-trading portfolios...
Liquidity Risk
RBC aimed at generating or obtaining sufficient cash or its
equivalents on a timely and cost-effective basis to meet commitments
as they fell due. RBC believed the management of liquidity risk was
crucial to maintaining market confidence and ensuring that
profitable business opportunities could be exploited... |
Insurance Risk
Insurance risk included product design and pricing risk, claims administration
risk, underwriting risk and liability risk...
Operational Risk
Operational risk was the risk of direct or indirect loss resulting from
inadequate or failed technology, human performance, processes or external
events. RBC endeavored to minimize such risks by ensuring that effective
infrastructure, controls, systems, and individuals were in place throughout the
organization...
Capital Management
RBC believed capital management required balancing the desire to maintain strong capital ratios and high debt ratings with the need to provide competitive returns to shareholders. RBC considered expected levels of risk-adjusted assets and balance sheet assets, future investment plans and the costs and terms of current and potential capital issues while managing capital...
Exhibits
Exhibit I: RBC: Capital Ratios
Exhibit II: RBC: Risk-Adjusted Assets
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