The top 50 global financial institutions spend a total of $23 billion annually on enterprise risk management—and that’s before you factor in risk management failures resulting in losses from market events, fines, litigation costs, regulatory discipline tied to fraud, or stress-testing noncompliance. By 2019, the annual ERM spend by these global institutions will climb to $31 billion.
Size, complexity, systemic importance and geography will influence how much each institution spends, and the numbers can vary based on public policy discussions, market volatility and institutional conduct. Worst-case scenario: These organizations could potentially spend as much as $100 billion on enterprise risk management.
But is it spending or investing? It should be the latter: At $23 billion annually, if that were to be invested with an average 7% return, an additional $1.6 billion in market profitability would be generated.
A new report by Medy Agami, Managing Director of Opimas LLC—”Running Enterprise Risk Management as a Business”—finds that, given the complexity in the market and the inability to generate higher return on equity via organic growth, acquisitions and interest-rate moves, financial institutions must look more carefully at the return they are getting from investments being made in enterprise risk management and run it as a business.
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