Seeking to manage banking risk safely
The nature of a bank's activity means it is exposed to a wide variety of risks. Managing these risks is therefore an intrinsic part of its business. What are the risks and how does it seek to safely manage them?
Why do we talk about managing banking risk?
It is the bank's business to take on and manage several kinds of risk for its clients. For the bank, all risks also have a cost that is related, among other things, to the need to make provisions for it - to be prepared for the financial impact should the risk come to pass. The bank is compensated for taking on this risk.
What are the typical risks for banking activities?
A "universal bank" like Societe Generale, which combines retail banking activities with corporate and investment banking, manages various types of risks including:
- credit risk, meaning the risk of losses that result from the inability of the bank's clients or other stakeholders to meet their financial commitments;
- market risk, generated by trading activities (interest rates, foreign exchange, loss of value of financial instruments, etc.);
- operational risk, which refers to the risk of losses or sanctions due to procedural failures, human error or external events;
- liquidity risk, the risk that the bank cannot meet its cashflow obligations when they are due.
What is Societe Generale's risk policy?
In 2011, Societe Generale launched an Enterprise Risk Management (ERM) programme with the goal of making its risk management systems simpler and more efficient. This is achieved by better integrating the concept of risk into the bank's strategy. Societe Generale has mapped all of its risks, defining a "risk appetite" for each of its businesses, as well as the operational thresholds that must not be breached. But managing risks goes far beyond simple management systems. With a view to prevention, Societe Generale also actively promotes a heightened "Risk Culture" in all of its teams, particularly through training and a programme of presentations, so that each employee is familiar with and able to manage the risks related to his or her activity.
5,200 Societe Generale Group employees belong to the "risk function", which is attached to the Risk Division.