Cost of control: balancing risk and expense

Banks typically build up layers of controls over time, creating extra cost and complexity, without going back to ask whether the controls remain relevant. One bank has developed a methodology to analyse whether the risk posed by a process is worth the costs of controlling it. By Iain Le Couteur and Rowland Weal

Banks face a tough set of challenges. Regulators are drawing up an assortment of new rules on capital, liquidity, and recovery and resolution, while some institutions are undergoing complex integrations, divestments and restructuring. One issue cuts through all this change: risk management.

Plenty of questions need to be asked: are banks doing enough risk management; is there total transparency of the risks being run; what level of risk is acceptable; and for what return should those risks be