The key to success for banks is to be able to chart the right course for the future by being able to understand the way the wind is blowing. Banks need to anticipate market movements so they can divest from problematic areas and invest in the growing sectors of the economy. Most of these predictions and analysis were done manually. Bankers would keep a close watch on market metrics, news stories, and trade magazines. They would also form friendships with important people in the industry so they could get insights about the latest developments. However, these strategies aren’t enough anymore.

One thing which is often missed when comparing the olden days to today is the pace at which commerce now occurs. Everything was slow back then – communication, trading, news – reporting happened at a very slow pace. Markets also moved at a much slower pace than they do now. Another major change is that the sheer amount of information that is available now is simply beyond human capabilities. No person can take in data from thousands of sources and analyze it to instantly determine the right move to be made right now.

Modern problems require modern solutions, which is why risk technology has become such a necessity for banks that want to grow. Risk technology doesn’t just help banks understand upcoming threats – the technology can also be a major help in highlighting the biggest opportunities the market presents. The banks that have the tools in place to uncover the opportunities first will be the ones that are able to profit the most.

Predictive Powers

There are two key pieces of the puzzle that enable modern risk management solutions to deliver predictive analytics. The first piece is historical data. Risk management solutions can analyze years of data in a short time and discover trends and insights which people may have missed. This data allows predictive solutions to understand how the variables are connected to each other. The second piece of the puzzle is real-time data. Once advanced solutions understand how the different variables are affected by each other, they can input real-time data in the equation to deliver real-time metrics and risk assessments.

Risk management systems use these two pieces – historical data trends and real-time metrics – to deliver predictive analytics. The system looks at the current data and identifies the trend being followed. It then looks at the trajectory of the trend based on historical data which then allows it to extrapolate probably future metrics. This means that the CRO will have access to not just the latest real-time data, but also to predictive analytics that can help with executive decision making.

Modern problems require modern solutions, which is why risk technology has become such a necessity for banks that want to grow. Click To Tweet

Internal and External Metrics

Advanced solutions leverage integrated internal and external KPIs (Key Performance Indicators) and KRIs (Key Risk Indicators) to detect problematic trends and predict emerging risks using Artificial Intelligence (A.I.) to augment internal and external risk data. These insights help drive executive decision making and enable the organization to increase profitability and accelerate innovation. This enables the solutions to deliver highly accurate predictions and warnings based on risk maps.

Risk Mapping

When the risk technology is implemented, a risk map is created. This risk map lays out the relationship between different business processes, controls, risk metrics, documents, and much more. This enables executive leadership and boards of directors to prioritize their focus to optimize their business operations and profitability.

External news and trends in the market can indicate areas of concern and opportunity that risk executives should examine further. With interconnected risk, KRI, and control data, risk leaders can also leverage real-time data so that a bank can more quickly seize opportunities than its competitors. 

One example is a liquidity risk and associated KRIs. In one scenario, the hypothetical CRO is using an advanced risk software solution. She observes that the bank is approaching its top-line threshold as stock market volatility has led numerous clients to quickly move their positions to cash. 

Because the system is delivering real-time reporting, the CRO is able to quickly inform the CFO, CEO and the board of directors of the bank’s liquidity surplus. This results in strategic investments that enable the bank to capture additional market share.

In the meantime, competitor banks using manual or legacy solutions are generating quarterly reports with data that is weeks or months old and unable to make strategic decisions as quickly as the hypothetical CRO. The competitive advantage in such a scenario enables the risk leaders to participate in value creation on a larger scale.

With today’s advanced technologies, we can expect CROs to play a much bigger role in executive decision making and for the risk team to increasingly impact decisions regarding strategic planning.

The competitive advantage in such a scenario would be immense. As mid-sized banks compete with each other to grow, having access to real-time analytics and predictive insights can make an important difference for the market position of the bank. Banks are no longer looking at the risk department as only a department that keeps the bank safe; the advancements in risk technology promise to make the risk department a value creator as well. We can expect CROs to play a much bigger role in executive decision making and for the risk team to have a seat at the table where decisions regarding the future of the bank are made.

Wondering how such a solution will work in your organization? Get in touch with our experts for a demonstration.