Introduction

Building a solid reputation can take a number of years, even decades, although, ultimately, such an initiative ought to be more of a continuous endeavour. Whilst no specific timeframe can be associated with a superior reputation, it is important to bear in mind that even a momentary lapse can significantly affect the reputation of a bank. As such, reputational risk needs to be prioritised and allocated the level of interest and resources that it warrants.

Key findings

• Background and Overview – The combination of intangibility and numerous contributing factors, combined with the general lack of clearly defined and departmental responsibility make reputational risk a particularly ambiguous area.

• Definition, Stakeholders and Current Practices – According to the testimonies provided by the participating firms, it seems that only one European firm has a central and dedicated team that is responsible for reputational risk management and oversight, developments and issues.

• Perceived Advantages and Disadvantages – Respondents perceive the level of interest and engagement to be imperative. The fact that reputational risk is now embedded within the different businesses and disciplines is considered to be one of the main advantages.

• Recent Initiatives and Stress Testing – Talking to the interviewees, it became apparent that stress testing has been extended to reputational risk, although only to a certain extent. Even though it has been extended in a limited capacity, it is an important development.

• Recent Events and Challenges – Developing the reputational risk plan and framework needs to be an ongoing and a key strategic priority. However, reputational risk management requires the attention and buy-in from senior management in order to make it effective.

Conclusion

Reputational risk is a discipline in its own right. The overall profile of reputational risk has been raised of late. As such, reputational risk needs to be prioritised and allocated the level of interest and resources that it deserves. Ultimately, the effectiveness of reputational risk plans and initiatives will depend on the level of stakeholder engagement and buy-in from senior personnel within the bank. The credit crisis has highlighted the inadequacies and accentuated the importance of reputational risk. The onus is now on the banks to continue this drive.

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Tagged with: 2010, reputational risk, risk management, Risk Research Report