Is there a difference between how the risk appetite process works at large banks and small banks?
Community banks rely more on the top-of-the-house risk appetite statement. Large banks more frequently use an interactive process between the top-of-the house and the business units to establish risk tolerance at the line-of-business level. Has the risk profile changed in these challenging economic times? Banks of all sizes overwhelmingly indicate that the amount of risk they are willing to undertake has decreased over the past 12 months. As a result, they’ve implemented tighter underwriting standards and not extended credit to portfolios with significant concentrations. Is risk tied to compensation for lenders? Large banks more frequently tie compensation to risk targets. Do banks reevaluate their risk appetite statements? Banks that revisit their risk appetite statements on a set cycle tend to do it annually. Large banks have made greater efforts to codify the process. Do regulators review a bank’s risk appetite statement? In general, regulators have not been involved in reviewing th
