Two weeks ago I put out an informal LinkedIn poll asking "What areas of risk need the greatest investment over the next 12 months?"  I call it an informal poll because the sample was not controlled, but the poll was extended initially  to my network which includes a wide array of risk professionals (both parishioners and consultants) across enterprise risk.  I also extended the question to a couple of international LinkedIn risk groups.  I received  approximately 50 responses and, while at first the results were volatile, as additional responses came in the results settled down.  I created the poll with an analytical suspicion and the poll has verified my thinking.

My analytical suspicion was that in addition to credit and operational risk being a primary focus of Wall Street, banks and regulators, liquidity risk is also at the heart of long term survival for the financial services industry.  Restated; As the global financial system has become more integrated, liquidity risk is now a global issue, not germane to any one region.  By definition, liquidity risk derives out of balance sheet volatility.  The risk that components of a balance sheet become volatile can impact a financial firms capitalization and external confidence can become s disrupted.  Liquidity is emerging from the treasurers office to become a primary risk factor for financial institutions.  I believe liquidity risk and solvency risk are synonymous.  Flash forward a few years and we will see the focus of regulators expanded from examination of capital coverage to functional components of the organizations balance sheet.  To this end, I wanted to confirm a shift in perspective from industry players is underway.  So what do industry insiders think the priority for risk spending should be this year?

• 30% of respondents felt the investment imperative over the next 12 months should be around solutions that help financial institutions understand, quantify and mitigate liquidity risk.
• 26% of respondents feel that improving and managing credit risk was still a priority.
• 22% of respondents indicate that with increased regulation a certainty investments in solutions that improve compliance is the mandate.
• 13% of respondents still see gaps in organizations abilities to define and manage volatility within their operations.
• 7% of respondents validate that potentially volatile global financial markets are an area for risk management investment and improvement.
  
  

While informal, this survey shows that the industry is diversifying its thinking around investment priorities.  I will run this survey again several months from now, but my takeaway is that aside from the traditional credit and operational risk concerns, the industry has woken up to the reality that investing in liquidity and solvency risk management solutions is a strategy for survival.