| FROM: SEP-OCT 2009 ISSUE | |
BY ANTHONY ARIGANELLO, CPA (DELAWARE), FCGA, PRESIDENT AND CEO, CGA-CANADA |
Trust, integrity, and accountability are at the heart of a healthy and well-functioning financial system. They’re the basis for a strong and vibrant economy. And, I may add, they are fundamental to an effective and respected accounting profession.
Faith in all of these principles has been badly shaken in the fallout from the worst global financial crisis since the Second World War. Consider that the chief executive of a leading Canadian bank told a U.S. Senate committee earlier this year that the American banking community knew about the risks that led to the crisis, but were too greedy to take measures necessary to avoid them. Ed Clark, CEO of the TD Bank Financial Group, suggested that the risks were well known and talked about. “It’s not as if there was mystery out there that the U.S. mortgage system had in fact gone way out on the risk curve and was doing what most bankers regarded as crazy lending,” he told the hearing.
Others have put the blame on a lack of discipline in risk management. Calls for changes to the way institutions manage risk have become all the rage. But to what end? How many of these lenders plan to make significant changes to their risk management processes? I worry that there may still be too much complacency around the management, reporting, and measurement of risk. An ACCA-CGA-Canada roundtable discussion this spring concluded that professionalism and ethics must prevail, and risk management scenarios should inform corporate actions.
We in Canada take considerable comfort and pride in the fact that Canadian banks shunned the perilous practices that devastated so many of their international counterparts. Indeed, World Bank president Robert Zoellick has said that Canada’s financial system should serve as a model. The Canadian banking sector is well regulated. It’s what the country’s prime minister has described as reasonable regulation with minimal micromanagement. Another reason is that Canada’s bankers are essentially a cautious lot, which is reflected in their prudent risk and capital management practices.
Risk management processes around the world are being reviewed and that’s good news. More telling, however, will be how much reform occurs and how deeply that reform permeates the financial industry’s culture.
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