In these turbulent times, risk management is the key concern for both board members and shareholders. Therefore, while many areas of banking are facing headcount reduction, risk management is the exception. In this new era of regulation, chief risk officers are being driven to strengthen their function and to hire experienced talent capable of delivering in the new environment.
Nowhere is the need to hire more apparent than in the area of liquidity risk, where banks are struggling to balance the need to manage regulatory liquidity requirements and to maintain profitability at a time of low margins.
In the process, the nature of the liquidity risk profession is changing.
Today, liquidity risk professionals need to be strategists with an eye for fine-tuning. Liquidity risk is seen as the "new market risk" and its practitioners need the kind of quantitative or risk-focused backgrounds that will enable them to stress-test liquidity ratios or calculate funding and capital requirements under new regulations.
By contrast, liquidity managers of the past typically had a background in accounting and were focused on reporting historical events.
This leaves most banks struggling to hire the liquidity risk talent they need. The pool of potential candidates is both limited and under-qualified. The only option available to many therefore is to look into global markets and trading business areas for individuals with the ability to move into liquidity risk. And unfortunately, these people come at an increased cost. Some banks have budgeted a 20 percent increase in liquidity risk compensation spend as a result.
This is already creating issues. The recruitment of former markets professionals into liquidity risk roles is creating significant disparities within compensation structures – particularly at senior levels.
Clearly, hiring expensive ex-markets professionals is not an ideal solution long term. Some banks are already, therefore, diversifying away from this approach and hiring at more junior levels. Unfortunately, it will take some time for this to come to fruition.
The three key skills needed in liquidity risk management
The three key skills in demand are as follows:
1. Those who are able to demonstrate an in-depth technical understanding of the business and its products (to respond to increasing demands from the Product and Business Heads).
2. Those with an in-depth and technical understanding of regulatory matters (and those able to respond to evolving and changing circumstance).
3. Quantitative skills and in-depth understanding of key risk indicators.
Maurice Evlyn-Bufton is the Managing Director and Head of Practice, Global Banking at Armstrong Wolfe.