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FRM Part I · FRM Exam Part I · Enterprise Risk Management and Future Trends

A bank's board wants a single, integrated view of credit, market, operational and strategic risks, with risk appetite linked to strategy and capital allocation across all business lines. Which description best characterizes this approach?

The approach is enterprise risk management. ERM takes a holistic, firm-wide view of all risk types and links risk appetite to strategy and capital allocation, whereas siloed management treats each risk separately, and transfer or avoidance are only individual responses to specific risks.

  1. AEnterprise risk management, which manages risks holistically across the organization rather than in silosCorrect
  2. BSiloed risk management, where each risk type is handled independently by its own department
  3. CRisk transfer, where the main aim is to move risks to insurers or counterparties
  4. DRisk avoidance, where the firm exits any activity that carries measurable risk

Explanation

ERM treats risks in an integrated, firm-wide way and links risk appetite to strategy and capital. Siloed management does the opposite, handling each risk type separately. Transfer and avoidance are individual risk responses, not an integrated framework.

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