Difference between revisions of "Risk Silo"

From Open Risk Manual
 
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* Technical specialization  
 
* Technical specialization  
 
* Internal business unit segmentation / company politics
 
* Internal business unit segmentation / company politics
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* [[wikipedia:Information silo | Information Silos]]
  
 
== Risk Silos in Banking ==
 
== Risk Silos in Banking ==

Latest revision as of 08:20, 12 August 2019

Definition

Risk Silo is an informal (usually meant as derogatory) characterisation ascribed to organizational structures of Risk Management. It is meant to indicate that the treatment of the range of various possible risks in done in isolation rather than in an integrated way

More elaborate risk management organizational frameworks going under the names Enterprise Wide Risk Management, Integrated Risk Management, or Holistic Risk Management have emerged as approaches to address Risk Silo vulnerabilities (but enjoy variable degrees of adoption / success)

Causes

  • (External) market segmentation, e.g., in terms of client bases or product type
  • Technical specialization
  • Internal business unit segmentation / company politics
  • Information Silos

Risk Silos in Banking

In the banking industry risk silos emerge around the various axes:

  • Market segmentation (e.g. Traded Credit Markets versus Commercial Banking activities) where similar risks are embedded and treated in different ways
  • Regulatory reporting segmentation (Credit, Market, Operational Risk) where internal risk management structures align primarily to regulatory requirements rather than intrinsic relations of risks
  • Risk units versus Finance units

Issues and Challenges

  • At its simplest, risk silos may hinder efforts for Risk Aggregation, that is collecting and compiling a complete overview of exposure to certain risks
  • The existence of more complex, e.g., interacting, risk phenomena means that a segmentation of risk management activities may potentially create blind spots for second order risks.



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