Whats holding up enterprise risk management?
After Fifth Third Bancorp in Cincinnati reported a 19 percent drop in net income for the first quarter of 2008, its credit risk team studied hypothetical loss scenarios that it faced for the remainder of that year and 2009.The results were sobering: The $113 billion-asset company would need $3 billion in capital and expense reductions. It cut dividends, sold more than half its credit-card processing business and issued $1 billion of preferred stock. Fifth Third’s CRO Mary Tuuk says, “It was all done on the basis of our own stress-testing,” more than a year before the Treasury Department’s own stress-testing exercise that ordered 10 of the nation’s 19 largest banks to raise capital. Had it not been so aggressive early on, Fifth Third’s required capital infusion would have been $2.6 billion, rather than the $1.1 billion that the government ordered. Such internal stress-testing is a challenge for many banks because of the poor state of enterprise risk management across the industry, analy
