Between 2008 and 2012, the world’s 10 leading banks lost around $200 billion due to incidents such as manipulation of the London Interbank Offered Rate (Libor), the London Whale scandal, irresponsible mortgage lending and tax evasion. These are just some of the examples that Germán López Espinosa, the Director of the University of Navarra Master’s Degree in Banking and Financial Regulation, used to highlight the importance of non-financial risks for the banking sector in opening his workshop “Non-Financial Risks Under the SREP”.

According to López, “It is necessary to develop robust non-financial risk measures to improve the stability of the banking system”. In doing so, banks will once again be in a position to contribute to countries’ economic and social development.

The workshop was held on the BBVA Campus in Madrid and involved experts from the Bank of Spain, the Institute of International Finance, McKinsey & Company consulting firm, PwC and the University of Navarra.

According to Silvia Senabre, an expert on technological risks from the Bank of Spain, technological risk is considered a priority in the banking sector because of the wide range of technological applications used by different banks. With this in mind, Senabre stressed that cloud computing and cyber security training are key to overseeing today’s banking sector. However, she pointed out that international cooperation in this area is “clearly inadequate”.

Sarah Dahlgren from McKinsey & Company in New York highlighted the importance of a bank’s culture for supervisory bodies and the institutions themselves. She explained that banking executives must understand a bank’s culture, as well as actively monitor situations that affect this culture and require rectification.

Development Banks: Leaders of Change

Álvaro Benzo, from the financial regulation department of PwC, also offered some insights. He warned that reputational risk should be included in all risk management processes. He explained that development banks such as the World Bank and the European Investment Bank are driving change in this field and even include it in their business models. Moreover, these institutions are responsible for managing the reputational risk associated with the impact of operations before they are executed.

David Schraa, the Director of Regulatory Affairs at the Institute of International Finance, explained that for Spanish banks, operational risk involves between 8% and 10% of capital requirements. He cited IFF recommendations to reduce the bias against banks and avoid penalizing them for their size or for losses arising from lines of business that the bank no longer pursues.

In turn, the Institute of International Finance advises regulators and supervisory bodies to take into account products that can cover operational risk losses.