The National Bank of Canada Priority - Research Paper Example

DRI Professional Practices in the National Bank of Canada The National Bank of Canada (NBC) recognizes that they belong to an industry where the level of risk is high. They are exposed to various risks that are capable of interrupting their operations any time of the day. Thus, Business Continuity Planning (BCP) is their topmost priority. BCP “is a must in an organization’s overall efforts to prepare for, respond to, and continue or restore operations following a disaster” (Kildow n.pag.). BCP is essential to the bank’s stakeholders because this will ensure that NBC is capable of delivering their product and services despite service and physical disruptions. In this paper, the three areas of DRI professional practices will be discussed. 1.0 Program Initiation NBC’s priority is to satisfy its stakeholders through an enhanced system of governance and risk management. To guarantee that their products and services will be available during disruptive events/ hazards, NBC provides this Business Continuity Planning Policy. This policy will enable the company to continue its banking operations and help in reducing losses in the midst of crisis. For instance, NBC has risk management policies, which are proposed, implemented, and reviewed by the Risk Management Group. These policies are approved by the Global Risk Committee under the authority of the Board of Directors. “These policies cover all the main risks defined in the Bank’s risk management approach and are reviewed on a regular basis...to ensure that they are still relevant given changes in the markets...” (National Bank of Canada 62). All the governance structures of NBC must adhere to these policies including the Office of the President, bank’s management, and business units (i.e. financial markets, wealth management, & personal & commercial banking). The Global Risk Committee of the NBC: 1. Jean Douville, Chairman of the Board of Directors. He and the other corporate directors will approve risk policies for the bank as recommended by the Risk Management Board or the Global Risk Committee. 2. Louis Vachon, President and Chief Executive Officer. The Office of the President and the senior management will approve any credit facilities, but those credit applications (personal & commercial) that are beyond their limitations are endorsed to the BOD for final approval. 3. Business Unit/Division Managers (i.e. human resource, marketing, operations, risk management). This group has bigger responsibilities in terms of policy implementation and should regularly report to the senior management for the effectiveness of the policy. See appendix 1 for the names of the senior management. 2.0 Risk Analysis Risk management at NBC means “striking a healthy balance between return and risk” (National Bank of Canada 59). NBC is exposed to external and internal significant business disruptions, which are treated based on policies inside the BCP (“Business Continuity Plan”). Moreover, the bank is also exposed to several risks including credit, market, liquidity, operational, regulatory, reputation, and environmental. All these risks are monitored, reviewed, and approved by the Global Risk Committee and the Risk Management Group. A good understanding of the involved risks is essential in the risk analysis or assessment (Alexander 5). The credit risk at NBC is composed of personal and business credit portfolios. This risk is the most significant because the probability of occurrence is high, and the impact is severe (National Bank of Canada 62). Also, this exists when individual and business obligors cannot pay their outstanding loans or contractual arrangement within the agreed timeline. Its impact to the business success is very high, and its priority status is elevated. Thus, to mitigate the occurrence and financial losses of this risk, the Global Risk Committee has developed the Credit Risk Management Policy. Through this policy, the bank will be able to determine a group of personal and enterprise obligors that are capable of paying their credits on time. The behavioral pattern is also determined, so that those that are always in default (based on borrowing trend & behavior scoring) will not be able to renew their credit portfolios. To know the probability, impact, and significance of personal credit risk to NBC, the risk will be assessed using the credit and behavior scoring models. Also, commercial credit portfolios will be assessed using default risk ratings and risk descriptions such as excellent, good, satisfactory, special mention, substandard, and default. Aside from credit risk, the bank is also exposed to other potential threats including natural (e.g. floods & hurricanes), facility (e.g. power failure & fire), technology (e.g. occurrence of cyber attacks & viruses), operational (e.g. credit risk & financial crisis), and social threats (e.g. terrorism & protests). Among these threats, NBC has given focus on natural and social threats because the impact of these interruptions to the system is very high. Flood and power failure are already experienced by the company; thus, the management must already know how to manage this crisis. See appendix 2 for the risk management chart. 3.0 Incident/Crisis Management The credit risk management policy is one of the risk management policies at NBC, which are approved by the Global Risk Committee. However, all the encountered risks are to be managed by the BCP Coordinator and the senior management team. For instance, it was in 2009 that NBC head office had experienced flooding inside the building due to water leak; however, the bank products and services were still made available to the public because of the BCP (Dube). Natural and facility threats are mostly unpredictable; thus, incident/crisis management responses must be prepared in a plan. In terms of flood or power failure, NBC’s operation will be transferred from affected offices to nearest unaffected branches (e.g. Montreal & Toronto), so that the product and service delivery will not be ceased. However, this procedure must be first approved by the incident management team or the VP’s of NBC. If the situation warranted that evacuation is deemed necessary, then the response team, together with business units/department heads, must notify and facilitate the execution of the procedure. For example, the role of the human resource manager is to disseminate information to employees and public consumers that the business operation will be relocated (where & when). In addition, service disruptions in terms of communication and data loss must be immediately repaired by the operation and information technology (IT) units, so that losses will be minimized. However, if there is no other way that technology infrastructures will be restored instantly, the support team must be activated through a source alternative (e.g. hard copy data). For communication problems, NBC has “the capability of redirecting telephone calls to remote locations that are well outside of the immediate vicinity until such time as we can recover...” (“Business Continuity Plan” n.pag.). Works Cited Alexander, Carol. Market Risk Analysis: Value-at-risk Models. England: John Wiley & Sons, 2008. Print. “Business Continuity Plan Disclosure.” National Bank of Canada: Financial. National Bank Financial, n.d. Web. 16 Jan. 2012. . Dube, Denis. “Access to National’s Head Office Restore.” National Bank Financial Group. National Bank of Canada, 2009. Web. 16 Jan. 2012. . Kildow, Betty A. A Supply Chain Management Guide to Business Continuity. New York: Amacon, 2011. Print. National Bank of Canada. “2011 Annual Report.” National Bank Financial Group.National Bank of Canada, 2011. Web. 16 Jan. 2012. . Appendix 1: The National Bank of Canada: Senior Management Members Job Title Louis Vachon President & Chief Executive Officer Diane Giard Executive VP in Marketing Luc Paiement Executive VP in Wealth Management France Roy-Maffei Executive VP in Operations John B. Cieslak Executive VP in IT Lynn Jeanniot Executive VP in Human Resource & Corporate Affairs Ghislain Parent Executive Chief Financial Officer & VP in Finance & Treasury Patricia Curadeau Grou Executive VP in Risk Management Rejean Levesque Executive VP in Personal & Commercial Banking Ricardo Pascoe Executive VP in Financial Markets Appendix 2 Chart for Risk Management Risk Matrix Score VH- Very high H - High M - Medium L - Low Risks/ Threats Likelihood Impact Priority Natural Flood M VH H Facility Power outage Fire H M VH VH H H Technology Data Loss Computer processing disruption H H VH VH VH VH Operational Credit risk Financial crisis H M VH H H H Social Terrorist attack L VH H Read More