Robert Maddox Quoted in Bank Director on What to Consider When Reviewing Risk Appetite of Bank Boards

Bradley attorney Robert Maddox was quoted in Bank Director on what bank boards should consider when reviewing risk appetite.

According to Bank Director’s 2024 Governance Best Practices Survey, sponsored by the firm, 40% of directors said their board reviews the bank’s appetite yearly, and 92% of participants felt their board was either very effective or somewhat effective in doing so.

“The risk appetite framework is going to be dependent upon the background of the bank,” which includes the makeup of its loan portfolio and whether it’s recently gotten into any new products or services, Maddox explained. “In defining the risk appetite, it’s got to be clear, it has to be specific, it needs to be actionable, and it needs to have reporting.”

One area of increased risk may be the regulatory environment. For example, proposed mortgage servicing rules, referred to as Regulation X, may be of particular relevance for banks with a significant mortgage lending business, he noted.

Because the proposed update could allow relief for troubled borrowers, bank leaders may want to take into account how often those borrowers fall behind. Maddox said, “My actionable issue would be, ‘What’s the recidivism rate? How many times do they come back in? That’ll tell me, you know, am I being too lenient? Am I being too tough?’”

Boards need to understand that the acceptable level of cybersecurity risk will never truly be zero, Maddox explained. But a tabletop exercise can help the board better understand how well-prepared the bank is for this type of risk by walking through the initial steps following a data breach.

“You’re not going to be there when senior management takes those first five steps. But if you go ahead and do the tabletop exercise, then you as a board have become a source of strength because you have directed the bank through those first five steps,” he added.

The full article, “Cybersecurity, CRE and Regulatory Risk: What Boards Face When Reviewing the Risk Appetite,” was published by Bank Director on August 9, 2024.