Bankers can make a smooth transition to new risk-based exams if they change their ways now, according to experts at the Bank Administration Institute's compliance conference.

Among the suggestions: accept that risk is inevitable, define precisely what risks the bank faces, and implement a system to manage those risks throughout the bank.

"Too many banks think that risk is not a normal part of the business, but that's a mistake," said Anthony M. Santomero, a finance professor at the University of Pennsylvania who specializes in risk management. "Banks are in the risk business. It's not something that can be completely eliminated. It has to be managed."

Regulators have made that clear recently. The Office of the Comptroller of the Currency and the Federal Reserve Board began grading banks this year on how well they manage risk, and the Federal Deposit Insurance Corp. is following suit.

The Comptroller's Office and Fed exams incorporate a bank's risk management efforts into its Camel score - a rating of the institution's capital, asset quality, management, earnings, and liquidity.

L. William Seidman, former chairman of the Federal Deposit Insurance Corp. and currently a commentator with CNBC-TV, told bankers that technology will eventually allow regulators to keep a closer eye on risk management efforts.

"Soon, through data bases, anyone will be able to tap into bank information daily," Mr. Seidman said. "Regulators will be seeing what banks are doing on a daily basis."

Of course, technology presents its own risk-management issues.

Alden Toevs, managing vice president at New York-based First Manhattan Consulting Group, said too much reliance on technology can lull bankers into a false sense of security.

Automated systems can allow smaller problems to linger and worsen, he said. That's because the computer won't identify the problem until it's too late.

"We're sowing the seeds of our own destruction," said Mr. Toevs. "The risks that get through the cracks in the past will be much more insidious. We have to think about how we could bite ourselves. Without thinking of that, you cannot have a program that is effective."

Mr. Santomero said there is little agreement among banks on how to best manage their risk.

"Small banks simply do not yet have the capacity to deal with risk in the same way as large banks do," Mr. Santomero said. "Even across larger banks, there is little consensus as to the specific details of how best to handle risk management."

That should change during the coming years as more banks adopt risk management practices, he said. Eventually, the regulators will publish guidelines on the best practices, he said.

Risk management may seem like a daunting task. But bankers and industry observers agreed bankers must tackle it now, because it only will grow in significance.

Most bankers, however, are still behind the curve. Jo Ann Barefoot, president of Barefoot, Marrinan & Associates in Columbus, Ohio, said most banks are just now embracing the technology to manage risk.

"The number of banks using technology is just a small portion of the industry, but it's rapidly growing," she said. "I'd be surprised if, within a couple years, almost all banks aren't using some sort of technology to help themselves."

Risk-management programs need to monitor balance-sheet threats from compliance, credit, balance sheet, and legal developments.

Mr. Santomero said bankers are scrambling to figure out how to control these various forms of risk. An effective program, according to the University of Pennsylvania professor, addresses risk at the point it is assumed and includes data bases for constant risk monitoring and evaluation.

Such systems should record fluctuations in the bond ratings of companies banks finance, and maintain updated demographic data on customers to help the bank analyze its credit risks.

More complex methods use computer models to attempt to predict consumer behavior in changing economic conditions. The models then calculate how the changes will affect a bank's bottom line.

Trading risk, Mr. Santomero said, can be judged this way, too. Successful banks also regularly inventory their holdings and maintain a comprehensive history on each stocks' tendencies.

Bankers need to review stock portfolios to guard against having too many stocks that would react to economic or political changes the same way, possibly subjecting the bank to big losses in the future.

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