Is Enterprise Risk Management Achievable at a Community Bank?
By S. Scott MacDonald, Ph.D. , Southwestern Graduate School of Banking I often hear from community bankers that Enterprise Risk Management (ERM) is a “big bank” concept. In his March 2006 speech to the Independent Community Bankers of America, Federal Reserve Chairman, Ben Bernanke said: “The rapid growth in commercial real estate exposures relative to capital and assets raises the possibility that risk-management practices in community banks may not have kept pace with growing concentrations and may be due for upgrades in oversight, policies, information systems and stress testing.” Although I learned a long time ago not to try and interpret what a Fed Chairman is trying to say, one might assume he is talking to the average community bank which has increased their total portfolio risk. As we discussed last time, the average bank has grown rapidly, increased their concentrations in commercial real estate and funded more and more of this growth with borrowed funds. At the same time, com
