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Moody's sees room for improvement in risk governance of large banks

Global Credit Research - 24 Jul 2009

Focus on large banks in Europe, North America and Asia-Pacific

London, 24 July 2009 -- In a Special Comment published today, Moody's Investors Service highlights that there is significant room for improvement in the risk governance of many large banks. With a focus on 35 large banks in Europe, North America and Asia-Pacific the report reviews risk governance practices, covering risk committee structure and frequency of meetings, risk committee composition and the existence, reporting line and status of the Chief Risk Officer (CRO).

"Only half of the banks we examined have a dedicated board-level risk committee covering all risks and meetings are not as frequent as we would expect. Moreover, for many banks, the actual independence of the risk committee is not adequate and/or the professional experience and background of the committee members are not fully in line with the role." says Alessandra Mongiardino, a London-based Moody's Vice President -- Senior Credit Officer and main author of the report.

The report also notes that whilst most banks have a dedicated CRO, there is still a minority of institutions where this is not the case. "For those banks that do have a CRO, not all report to the CEO. A joint reporting line of the CRO to the CEO and the board, consistent with best practices, occurs in only three banks" adds Mongiardino.

Moody's believes that strong checks and balances to a financial firm's management, provided by the board, are an important rating consideration. The quality of a financial institution's risk governance is a main input in the overall assessment of a firm's risk management, representing one of the qualitative factors (incorporated in Moody's methodology) with which to assess stand-alone financial strength of banks and other financial institutions.

Moody's expects to see a strengthening of the risk governance of large financial institutions in the near-to-medium term, and will monitor this closely; in particular, the rating agency will look for any loss of momentum once the global financial crisis starts easing. Moody's notes that its analysis is company-specific and considers the appropriateness of the changes in the context of the business model and the risk profile of each bank. The rating agency also observes that weaknesses in risk governance -- if not adequately addressed -- will continue to exert downward pressure on ratings in the current environment, and could constrain upward rating movement after the current financial crisis subsides.

The report -- 'Risk Governance at Large Banks: Current Status and Credit Implications' -- can be found at www.moodys.com

NOTE TO JOURNALISTS ONLY: For more information please contact New York Press Information +1-212-553-0376; EMEA Press Information in London +44-20-7772-5456; Juan Pablo Soriano in Madrid +34-91-310-1454; Alex Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris +33-1-5330-1020; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7-495-228-60-60; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-2916-1150; Hector Lim in Sydney +612 9270 8102; Luiz Tess in São Paulo +5511-3043-7300; Alberto Jones Tamayo in Mexico City +5255-1253-5700; Daniel Rúas in Buenos Aires +54 11-4816-2332 ext. 105; Leon Claassen in Johannesburg +27-11-217-5470; Jehad el-Nakla in Dubai +971 4 401 9536; or visit our web site at www.moodys.com

London
Alessandra Mongiardino
VP-SCO- Risk Management Specialist
Enhanced Analytics Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

New York
Mark LaMonte
Senior Vice President
Enhanced Analytics Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's sees room for improvement in risk governance of large banks
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