Page 39 - EBA 2013.2869 Risk Assesment Report final proof4

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R I S K A S S E S S M E N T O F T H E E U R O P E A N B A N K I N G S Y S T E M
37
liabilities) as well as the level of disclosure
often leaves room for interpretation.
Even though legal risk is covered by the oper-
ational risk framework, Pillar 3 disclosures
on this topic appear not very well developed.
As for costs stemming from reputational
risks, explanations should mostly be found in
Pillar 3 reports. However, the level of disclo-
sure differs significantly between institutions
and information tends to be rather unspecific
or high level only. Risks are often generally
acknowledged, but attempts to quantify as-
sociated costs are rare.
While fines and other redress costs related
to past business practices which have aris-
en to date affect banks’ profitability, they do
not substantially affect their capital posi-
tions. However, reputational damage coupled
with ongoing uncertainties stemming from
lengthy legal proceedings and potential addi-
tional substantial redress costs is detrimen-
tal for banks’ ability to raise capital.
Policy implications and possible
measures
All these detrimental incidents indicate that
there is room for improvement in many in-
stitutions’ risk management functions and
compliance procedures regarding business
conduct issues, and point to the need of fur-
ther improvements in risk cultures and risk
appetites. Compliance with internal and ex-
ternal rules for risk management and com-
pliance functions needs to be ensured and
warrants increased supervisory attention in
light of rising risks.
Even though most banks recognise that rep-
utational risks are becoming an issue, only
38 % of the responses in the RAQ sample in-
dicated that contingency reserves are being
0 % 5 %
10 % 15 % 20 % 25 % 30 %
Since the end of your financial year 2007/08, your firm has paid out to consumers in the form of
compensation, redress, litigation and similar payments (converted to EUR) an aggregate amount of:
a. Less than EUR 10 m
b. Between EUR 10 m and EUR 50 m
c. Between EUR 50 m and EUR 100 m
d. Between EUR 100 m and EUR 500 m
e. Between EUR 500 m and EUR 1 bn
f. More than EUR 1 bn
Agree
Figure 30: Payments to consumers since 2007 (
source:
RAQ)
The length of the bars shows the percentage of respondents who agreed with the statement on the y-axis.
0 %
20 %
40 %
60 %
80 %
Looking across the banking sector, you consider the most
important risk for retail customers:
a. Lack of knowledge
b. Misleading marketing
c. Default of their bank
d. Deepening of the euro crisis
e. Mis-selling
f. Other
Agree
Figure 31: Important risks for retail customers (
source:
RAQ)
The length of the bars shows the percentage of respondents who agreed with the statement on the y-axis.