Hi John,
I got a 404 error message when I tried the link. Please advise.
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Bank Risk Chatter:
riskcenter.com
February 28: Germany’s Deutsche Bank Is Criticized By Auditors Who Say Its Risk Management System Is Shaky
Location: Frankfurt
Author: Angelique van Engelen, RiskCenter Europe
Date: Thursday, February 28, 2002
Print Article
A story by Germany’s Handelsblatt—quoting bank auditors and business consultants that they are not at all impressed with Germany’s main banks’ risk management systems—has caused major upset.
The quoted business consultants lashed out strongest at Deutsche Bank, whose risk management weaknesses are blamed for its losses during the last quarter of 2001.
The article quotes Big Five auditors and business consultants who voice concern over banks’ risk provisioning levels, which they insinuate in many cases could be much lower if the right risk management systems would be in place.
Another issue they raise is that the risk systems often are patchy, attached to business units rather than to the overall banks. Apparently not a single German bank has one system that covers the entire bank’s operations, according to the article.
Departures of key risk managers and the general lack of fully trained personnel in risk departments—especially at Deutsche Bank—are cited as a major weakness in the report, which quotes consultants from the Big Five accounting firms.
Investments estimated at hundreds-of-millions of Euros are said to be needed to prop up the risk management situation in the sector for these ailments to be cured. Some experts in the market believe the criticism is fair, but others don’t agree in the slightest. A spokesman at Deutsche Bank called the article pure nonsense. “To the contrary. Deutsche Bank’s risk management systems have a rock solid reputation,” according to the spokesman. He added that even compared with international peers, Deutsche Bank is among the top firms with one of the lowest risk provisioning ratios.
The Deutsche Bank spokesman said that the article treated even the other German banks unfairly and that all mainstream banks have risk management systems in place that meet international standards. Others commenting on the situation said that the external circumstances that the banks are faced with are also reason to provision for higher risks and that it is naïve to assume that shaky internal risk management flaws, that presumably had become apparent after September 11, had been the only driving factor behind increased risk provisioning.
Yet risk management systems “should give you a signal in advance so you stop lending to the sectors that will be providing bad loans,” says Patrick Marous of ConPAIR, who is not convinced that German banks’ risk management systems are working quite the way they should. He cites the bursting of the tech bubble as an event that should not be underestimated when it comes to assessing the increased importance that the German population, having only recently pulled their marks from under the mattresses, attaches to having investments that should not go wrong because of a system failure.
The German laws therefore reflect utmost caution in some respects. For instance, there’s a rule that risk management systems—not the management that’s responsible for the risk management arrangements—are audited separately every year.
Yet at the same time other practices strike one as rather reckless. German regulators so far have not stumbled on the fact that some companies have their auditors sitting on their supervisory board. Anomalies like these are being addressed by the Corporate Governance Committee headed by former ThyssenKrupp chairman Dr. GerhardCromme, who is advising the government on how to change current corporate legislation. The committee is very much in favor of having full transparency and clarity on all issues pertaining to companies’ supervisory boards. “Their advice could lead to rather tough laws in Germany, but if you see the Enron situation, it might be necessary to be tough,” Marous says. |
