Making better bankers - Glenn Wilson, US Citizens National Bank

RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk, and operational risk.

Here the RMA’s new 2006-07 chair, Glenn Wilson, president and CEO of the US Citizens National Bank, outlines the important role the RMA plays for individuals, for institutions, and for the industry. He also outlines where the RMA is headed in Europe.

FST. As you assume the chair of RMA, can you describe how you view RMA’s role within the industry?

GW. RMA’s role is to make us better bankers. It does that through training, networking, and events at the chapter level and with national programs such as the annual Risk Management Conference, the audioconference series, and Mentor training programs. In particular, eMentor is an excellent resource that helps lenders and credit analysts work more efficiently. RMA also advances our profession as risk managers through its thought leadership and its studies, such as last year’s study of economic capital practices at major banks and its recent retail risk best practices study.

Of particular value to the industry is RMA’s ongoing dialogue with the regulatory agencies on policy issues. We play a key role with the regulators because we’re well respected, and we can influence or fine-tune direction. A key part of our credibility is that we have a dialogue with regulators. When we disagree with them, as we do from time to time, we provide the regulators with compelling evidence of industry practice to support our position.

Our agenda is risk management. We want balanced, prudent, and leading-edge risk management for institutions and for the industry. Through our thought leadership on enterprise risk management, RMA is advancing the industry. For instance, the products and services we are developing around operational risk management are filling a space that had previously been empty.

FST. Let’s talk about the regulatory environment – regulatory burden has been described as the major industry issue. Do you agree it has been the key issue for the past two years.

GW. It is. As risk managers, we’re concerned that the ever-increasing number of regulations and compliance-related requirements are deflecting our attention from the primary risks. While the industry has always lived with strong regulation and we would all agree that the system benefits from a healthy regulatory structure, the pendulum may have swung too far in terms of prescriptive mandates. I worry that, as an industry, we may be taking our eyes off some of the major risk areas because of the increased focus on compliance. I know that RMA has raised this issue with the regulatory agencies a number of times and that they are sympathetic to the concern, recognizing that a compliance focus can take resources, both ours and theirs, away from safety and soundness.

FST. In your day job you run a community bank in the US with assets of around US$1.4 billion, within a holding company structure that holds about US$17 billion in assets. How do you, as an institution of that size, deal with the regulatory compliance burden?

GW. We get some support from our holding company, but we know it’s our primary responsibility to make sure that we comply because we have our own regulator, the OCC, and so we have to make sure that we’re satisfying its requirements. And we struggle. We have added two full-time people over the last three years to work solely on compliance. We also have other employees whose jobs have become more compliance related than in the past.

FST. Some time ago, consolidation within the industry was a key concern, particularly for community banks. Would you say that the regulatory environment has replaced consolidation as the key issue? And if so, why?

GW. Yes, I think it has. While there has been a lot of consolidation in the industry, new banks have been forming. The shrinking of the industry is not as material as some had predicted a few years ago. According to one prediction, banks below half a billion in asset size would never be able to survive. Well, the competitive environment has gotten much tougher, but they’re still out there.

Part of the reason they’re out there is that the investment community seems to have plenty of capital available for de novo banks to start up at levels that far exceed past levels of capital, allowing the de novos to sustain themselves for three to four years without making money. The barbell theory of banking is relatively true, but there are players in the middle that have been surviving and doing quite well. Part of the reason is that we really haven’t had a significant downturn in the credit cycle that purges the weaker players.

FST. With that in mind, you’ve noted that underwriting standards have improved since the last significant downturn. What role has RMA played in raising underwriting standards for the industry as a whole?

GW. Certainly RMA’s ongoing dialogue with the regulatory agencies has been helpful, and we’ve often supported early warnings that standards may be slipping while also cautioning against overreacting. We try to take a balanced approach. We survey our members to get an understanding of what they are seeing, and we portray their insights in an even-handed fashion. At times, we’ve told the regulators that we think things are worse than they look. And we’ve told them at times that they’re better than they look.

Our emphasis on enterprise risk management has led institutions to take a more holistic view of risk beyond just the credit arena and particularly to scrutinize operational risk. In addition, in 1994 we came out with the 10-point dual-rating system, which has become the industry standard. And now, the most advanced institutions have moved beyond that. We’ve also addressed emerging risks on a timely basis, such as our recent survey and audioconference series on preparing for an avian flu pandemic, and our audioconferences on regulatory matters such as anti-money-laundering compliance.

FST. What major business issues would you like to see RMA pursue during your 2006-07 term as chair?

GW. We need to keep raising the bar on enterprise risk management (ERM), and promoting awareness of it, particularly with medium-size and smaller banks. In larger banks, ERM has become engrained, and it is now filtering down to smaller institutions. RMA was the first in the industry to promote enterprise risk management, and we need to maintain our leadership role in this key area – that’s our key focus.

FST. You’ve been involved with the RMA for a long time. Has the Association’s focus shifted from focusing largely on credit risk to one focused on enterprise risk management, encompassing credit risk, market risk, and operational risk?

GW. Yes, the change has certainly been appropriate and we will continue to evolve carefully. RMA’s foundation is credit risk, and we have expanded and added value in that arena with the introduction of eMentor and the credit risk certification program.

Operational risk is a new, exciting area, one that’s near and dear to our hearts. It brings a more formal approach to a whole spectrum of risk areas that have been managed informally. Larger banks are certainly better at formally managing operational risk, and their experience will trickle down to smaller institutions that will benefit from it over time.

Market risk is the area that represents some new opportunities for RMA, and it will be an area that we’ll continue to develop. But whatever we do, we need to do it right. We can’t bite off more than we can chew. RMA’s professional staff has been prudent in moving us along and recommending change at a measured, appropriate pace – not too fast, not too slow. The industry is changing, so we have to change as well to remain relevant.

FST. How do emerging risk management practices at large institutions, particularly in operational risk management, benefit the whole industry?

GW. The development of Key Risk Indicators is a good example of work done by a small group of large institutions to quantify and catalogue all the various risk areas. Eventually, perhaps in five years, that work will benefit smaller banks. Another way emerging practices spread throughout the industry is through individual risk managers.

In the past, we focused on the institution and then the people who were part of that institution. Today, people don’t spend their career at one institution. They’re fairly mobile. We want to make sure that we stay connected with them and that they stay connected to their profession.

We’re developing strategies on how RMA membership can be as mobile as our risk professionals’ careers. The credit risk certification program is one way we are doing that. Also, the chapter network provides portability of membership since there are two levels of membership – institutional and individual associate. Meanwhile, it is important to note that, despite consolidation in the industry, RMA’s membership has continued to grow. We have about 17,400 members today as opposed to 16,000 last year. And that’s contrary to the experience of most membership organizations today. So we must be doing something right.

FST. You started in the US – how has your membership grown internationally, in Europe for instance?

GW. RMA has also expanded internationally, and our international expansion has been driven by US and North American banks that now have either ownership or presence internationally. There has been somewhat of a push, but even more of a pull, in areas across the globe because of strong demand for what RMA offers. The Swiss-based Operational Riskdata eXchange Association has been managed by RMA for about a year now. It is an institutionalized forum for the exchange of operational-risk-related loss information among its members in a standardized, anonymous, and quality-assured form.

The chapter we planted in Australia has just continued to mushroom. Our membership is expanding in Asia and throughout Europe. In Egypt, we’ve recently received nine registrations for the credit certification program. There’s no question about it. Existing RMA members who have expanded globally have created the demand. Strong RMA supporters that are acquired by a global institution such as HSBC and ABN Amro also contribute to demand. There’s value in what we do and it’s not just US value, it is worldwide. Risk management is a worldwide concern.

FST. Finally has your involvement with the RMA benefited your career from a personal point of view?

GW. Yes, I was the chair of my local chapter six years ago. I served on its board for 15 years, and today I’m an ex-officio board member. My association with RMA has been rewarding throughout my career. When I first got into the credit and lending field, RMA provided resources to help me grow. I always read The RMA Journal; its content continues to improve in richness and relevance. I have participated in the local chapter programs and, later, the national training programs.

What’s more my active participation and leadership roles in my local chapter provided me with an opportunity to meet people whom I would not have met otherwise. RMA is great for networking. My current position at Citizens Bank is a direct result of my RMA involvement. When the senior lender position, the number-two position at the bank, became open here, RMA contacts called me and said, ‘Here’s a role you might want to look at’. So I can, in fact, say that RMA has greatly enriched my career. I’m in the position I am today, in no small part, because of RMA. And it is for that reason that it’s such an honor and pleasure for me to serve as chair of RMA. I want to give something back to the Association that has given me so much.

RMA’s global expansion

As the financial services industry has become increasingly global, RMA has developed chapters in significant European and Pan Asian markets. RMA presently has chapters in London, Hong Kong, Singapore, Sidney and Melborne, with plans underway for a Paris Chapter. In Europe, Simon Wills, a former top executive with the British Bankers’ Association, leads RMA’s European expansion and is based in the UK. Wills also serves as the Executive Director of the Operational Riskdata exchange (ORX), a Swiss-based, not-for-profit forum for the exchange of operational-risk-related loss information that RMA has managed for the past year, which has the largest database of loss observations available.

In Brussels on February 7, RMA will be hosting a Basel II Implementation Forum where leading industry experts will discuss the many challenges to successful implementation for global firms that must contend with cross-border issues.

And in March 13-15, ORX and RMA will present the Global Conference on Operational Risk in New York, where the most senior industry executives will discuss their concerns and current priorities. Jay Newberry, Managing Director and Head of Operational Risk for Citigroup, and an RMA Director, will lead a panel discussion of Chief Operational Risk Managers, including Mick Leonard, Executive General Manager, Group Risk Management, Commonwealth Bank, Joseph Sabatini, Managing Director, JPMorgan Chase, and Chairman of ORX, and Yousef Valine, EVP, Wachovia Corporation, and Chairman of the AMA Group. RMA will present its inter-bank KRI benchmarking study and a ‘State of ORM’ survey on the development of operational risk management as a discipline. Registration is available online at www.rmahq.org.

This is an abridged version of an interview first published in the October 2006 issue of the RMA Journal, and has been reproduced with kind permission. For more on the RMA please see www.rmahq.org.