Spain Leads the Way

The Financial Times reported a few days ago that financial institutions in Spain have taken risk management to a new level as part of their overall corporate governance practices.  Board members are actively involved in decision making and frequently apprised of changes to the company's risk profile.  Here are a few examples.

Every Wednesday morning at 9.30am, five BBVA board members gather at the Spanish bank’s head office in Madrid. For the following three hours, they review new loans and discuss broader risks that might affect the bank’s operations. When necessary, they reconvene the next day. Other Spanish banks take a similar approach. Santander, BBVA’s main domestic rival, has a five-member risk committee, including three non-executive directors, which met 102 times last year. Managers believe that this intense board-level focus on risk is one reason why Spain’s large banks have so far weathered the credit crunch in better shape than many of their European rivals. Emilio Botín, Santander’s chairman, recalls a visit from a former chairman of the US Federal Reserve who expressed surprise at the amount of time the bank devotes to risk management. “It’s true, it consumes a lot of our directors’ time,” Mr Botín said in a speech last year. “But we find it essential. And it is never too much.”

While this may be hard to duplicate in the U.S., it is a testament to the importance and value of strong risk management practices.  In Spain, it seems they do know the rain stays mainly on the plain.