Moody’s sees room for improvement in risk governance of large banks Focus on large banks in Europe, North America and Asia-Pacific

London, 24 July 2009 -- In a Special Comment published today, Moody's 
Investors Service highlights that there is significant room for 
improvement in the risk governance of many large banks. With a focus on 
35 large banks in Europe, North America and Asia-Pacific the report 
reviews risk governance practices, covering risk committee structure and
frequency of meetings, risk committee composition and the existence,
reporting line and status of the Chief Risk Officer (CRO).

"Only half of the banks we examined have a dedicated board-level risk 
committee covering all risks and meetings are not as frequent as we would 
expect. Moreover, for many banks, the actual independence of the risk 
committee is not adequate and/or the professional experience and 
background of the committee members are not fully in line with the role." 
says Alessandra Mongiardino, a London-based Moody's Vice President -- 
Senior Credit Officer and main author of the report.

The report also notes that whilst most banks have a dedicated CRO, there 
is still a minority of institutions where this is not the case. "For 
those banks that do have a CRO, not all report to the CEO. A joint 
reporting line of the CRO to the CEO and the board, consistent with best 
practices, occurs in only three banks" adds Mongiardino.

Moody's believes that strong checks and balances to a financial firm's 
management, provided by the board, are an important rating consideration. 
The quality of a financial institution's risk governance is a main input 
in the overall assessment of a firm's risk management, representing one 
of the qualitative factors (incorporated in Moody's methodology) with 
which to assess stand-alone financial strength of banks and other 
financial institutions.

Moody's expects to see a strengthening of the risk governance of large 
financial institutions in the near-to-medium term, and will monitor this 
closely; in particular, the rating agency will look for any loss of 
momentum once the global financial crisis starts easing. Moody's notes 
that its analysis is company-specific and considers the appropriateness 
of the changes in the context of the business model and the risk profile 
of each bank. The rating agency also observes that weaknesses in risk 
governance -- if not adequately addressed -- will continue to exert 
downward pressure on ratings in the current environment, and could 
constrain upward rating movement after the current financial crisis 
subsides.

The report -- 'Risk Governance at Large Banks: Current Status and Credit 
Implications' -- can be found at www.moodys.com

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