As liquidity becomes a larger issue, a growing number of banks are borrowing from the Federal Home Loan Bank System to fund their lending.
As at other regulated entities, directors and senior executives of the Federal Home Loan banks are not immune to responsibilities for risk management. Over the past few years the Federal Housing Finance Board has further clarified these responsibilities.
Most notable was the requirement that the Home Loan banks have risk management policies that address their exposures to credit, market, liquidity, and operations risk.
I spoke to Al DelliBovi, the president of the Federal Home Loan Bank of New York, to learn how it had responded.
Beginning in mid-1999, an integrated organizational diagnostic was performed under which every business process was assessed and evaluated, he said. Non-value-adding work was eliminated and new high-performance options were developed and implemented.
At the same time, he said, the banks structure was redesigned to make it easier to identify, measure, and manage the internal and external risks that affect how well the bank reaches its objectives.
The key to the redesign was the formation of an executive team under which five risk teams were formed to manage risks and day-to-day operations in an integrated fashion. The old command-and-control structure was replaced with a flat organization where teams are viewed as value creators. Risk teams are engaged in managing risk throughout the organization.
This process-based risk management structure is a work in progress that is assessed against high-priority bank objectives.
Mr. DelliBovi said he feels that this integrated management approach has redefined the operation of the bank and aligned its day-to-day activities more precisely to performance objectives.
High-level business and strategic initiatives are evaluated across the risk teams and have promoted a more balanced decision-making process, he said.
The New York bank has moved from a functional structure to an explicit business orientation, with activities organized exclusively around business processes. The result is a fully integrated risk management organization with an at-the-source orientation and leadership that is dedicated to coaching and delegating.
The dynamic realignment brought the bank into almost immediate compliance with the Finance Boards risk management policy regulation. It helps the bank execute its business better and leverage information and individual skills for its own benefit and that of its member lenders.
Ms. Seymann is the president and chief executive officer of M One Inc., a Phoenix-based financial services consulting firm.