New risk management infrastructure and chief risk officer provide clear risk insights and processes.
Challenge
The CEO and board of a large U.S. financial institution turned to McKinsey to help the institution with its numberone agenda item—risk management—after the company lost several million dollars in its high-yield portfolio and was given a negative outlook by the ratings agencies and analysts. McKinsey decided there was limited risk transparency at the corporate level, in part due to a lack of corporate risk oversight.
Discovery
McKinsey first developed a 'heat map' to create corporate-level risk transparency. The team then established a corporate risk management function and began implementation of required corporate-level processes. It explicitly defined the overall level of the corporate risk function. McKinsey also developed next-generation risk reporting, which more precise heat maps, with a monthly production capability, among other elements. The team also launched 'deep dives' to drill down on key risk concentrations across the enterprise.
Impact
The McKinsey plan created a "one-enterprise view" on risk at the CEO/senior-executive level. A chief risk officer was appointed and a corporate risk management infrastructure with clear responsibilities was established. The team redefined strategic asset allocation of the investment portfolio, and upgraded investment processes and risk-management skills.