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As a benchmark financial company emerging from the subprime mortgage crisis, Wells Fargo has been favored by global investors for its unique retail banking positioning and outstanding growth performance in recent years, and has become synonymous with stable operation and differentiated operation. In September 2016, the US consumer Aiki, net worth, information and financial protection bureau (B) suddenly exposed that Wells Fargo has a five-year account fraud history, the latter's proud cross-selling model is widely questioned, robust The business image has also been seriously affected. The fraud incident not only tested the ability of the US regulatory authorities to respond to the global financial system, but also tested the ability of Wells Fargo to manage its own crisis. In the face of sudden public opinion pressures and reputational crises, how Wells Fargo can properly respond to it will show its ability to turn the tide and become the focus of global attention. At present, this incident is still in the process of continuous fermentation, but the experience and lessons of Wells Fargo in the handling of this crisis undoubtedly provide a rare risk management case for China's fast-growing banking industry.
Crisis disposal mechanism is of great significance to banks
With the development of modern economy and finance, the business structure of commercial banks has already broken through the traditional single mode of deposit and loan, and is moving toward integrated and group management. Many international advanced banks have put forward the "customer-centric" or "one bank" (OneBA nk) collaborative business philosophy, aiming to make full use of the bank's integrated financial resources to meet the diversified investment and financing needs of customers. According to the definition of the Basel Capital Accord, the banking industry is a high-risk industry with multiple risks such as credit risk, market risk and operational risk. After the outbreak of the subprime mortgage crisis, the international banking industry generally realized that once the banking industry neglects the risk of internal control due to excessive pursuit of capital profits, it will bring huge damage to the bank itself and the entire financial system. A sound crisis management mechanism is crucial for the stable operation of banking institutions and the overall stability of a country's financial system. Especially in the Internet era, after the outbreak of risk events, if it is not handled or handled improperly, it is easy to produce a "butterfly effect." In the process of responding to the crisis, banks need to introduce emergency response mechanism, reputation reconstruction mechanism and internal control management mechanism according to the requirements of short, medium and long-term stages, not only to minimize current and potential losses, but also to prevent similar risk events from recurring. occur.
In the short term, the emergency response mechanism will help banks to “stop bleeding†quickly.
Commercial banks are different from ordinary industrial and commercial enterprises. Their business targets are financial assets and financial liabilities, and they have the functions of credit intermediation and credit creation. Whether the bank's image is stable and its reputation is healthy will be an important basis for customers. After the crisis has occurred, if it fails to respond in a timely and effective manner, it is likely that the crisis will be amplified and then spread quickly, further exacerbating the credit losses of commercial banks. On the contrary, rapid disposal can bring immediate "hemostasis" effect: First, avoid negative information to occupy the mainstream communication channels. In the Internet age, any information can be spread to all parts of the world in a very short time. If the bank does not decisively take appropriate measures to inform the media and the public in a timely manner, it may cause information vacuum, condone the negative information that is not conducive to the bank's reputation, and deepen the public's misunderstanding and speculation on the bank crisis, resulting in the bank. Missing the best time to control the deterioration of the situation. The second is to avoid public misunderstanding of banks and rapid escalation of dissatisfaction. After the crisis, customers, shareholders and the public, in addition to the urgent need to understand the truth of the incident, pay more attention to the potential loss of their own interests in the crisis and the remedial measures the bank is prepared to take. These judgments are largely based on the bank's first-time information disclosure, positive attitude and clear commitments, including public apologies and necessary compensation commitments. In addition, an important prerequisite for rapid disposal is the effective identification and assessment of reputational risks. If the identification is delayed and the evaluation is not effective, the hidden reputation risk cannot be killed in the bud, which greatly increases the probability that the risk will evolve into a public opinion event and a reputation event.
In the medium term, the reputation reconstruction mechanism helps banks to restore customer confidence.
Reputation is the core of bank credit, and it is related to the bank's business development and profit creation. The main performance is three aspects: First, the bank's reputation has an important impact on the ability to continue operations and the value of the bank. One of the core functions of the bank is to identify, measure, and monitor risks, and carry out various asset business, liability business and intermediary business according to the principle of matching risk and revenue. If the bank's risk management capability is questioned by customers, shareholders, and regulatory authorities, its ability to continue to operate will be affected, and the value of the bank will also decline. Second, bank reputation has an important impact on customer loyalty. Due to operational risks or defects in other financial products or services, causing customers to suffer undue losses or undue expenses will seriously affect the customer's trust in the bank.
As customer loyalty declines, banks will lose a large number of customers, and the future profit margin will be greatly reduced. In the "Hail ç ¸ refrigerator incident" in the 1980s, Zhang Ruimin smashed 76 unqualified refrigerators. At that time, a refrigerator was equivalent to two years of salary for an employee. Although Haier paid a certain price, it has produced a high-quality and high-quality Haier concept, and let Haier's corporate culture of “high standards, fine work and zero defects†penetrate the hearts of employees and customers. Third, bank reputation is an important factor in determining market financing capabilities. Commercial bank operations have the characteristics of high debt operation. Once the bank's reputation is damaged due to improper handling of sudden crisis, and the external rating or regulatory rating declines, the bank will increase the financing cost in the financial market due to insufficient liquidity. When liquidity is further exhausted, it can only be forced to seek help from the central bank or go bankrupt. It can be seen that the reputation reconstruction mechanism of commercial banks is related to whether the bank can restore the trust of customers and win the future growth space.
In the long run, a sound internal control mechanism will help banks operate steadily.
The perfect emergency response mechanism can only cope with the moment, and the reputation reconstruction mechanism can only serve as an after-the-fact remedy. In order to fundamentally reduce the probability of occurrence of crisis events and ensure the long-term success of the industry, we must rely on sound internal control mechanisms and risk management systems. After the outbreak of the subprime mortgage crisis, major international banks have re-examined and reviewed their internal control status, arguing that the occurrence of the crisis is directly related to the defects of the internal control mechanism, especially the improper management of authorization. Commercial banks can only improve their risk management capabilities, strengthen their sense of responsibility for risk management, and establish a comprehensive internal control system with “management has regulations, operations, systems, authority, process monitoring, risk warning, and departmental constraintsâ€. In the first place, it is in an invincible position in the long-distance running of the market.
Experience and lessons learned by international banks in dealing with crises
Modern commercial banks have been in development for more than 400 years. Since the 1980s, with the development of social economy, the development of financial technology, and the intensification of competition in the banking industry, the business scope and activities of commercial banks have been expanding, the product structure has become increasingly complex, management methods have been continuously innovated, and relevant stakeholders have become increasingly diverse. Commercial banks The risks are becoming more and more complicated. If each risk event is improperly disposed, it may bring huge losses to the bank and even induce a systemic financial crisis. Therefore, most international banks attach importance to the mechanism of sudden crisis management. However, there are also a few banks that are often neglected in management and prevention, and it is difficult to timely and effectively deal with sudden risk events, resulting in a sharp deterioration of the situation.
Bank of Bahrain: ignoring internal control management ruined a century-old shop
In 1995, due to the failure of the foreign exchange trader Li Sen in Singapore to speculate on the Nikkei index futures, the 233-year-old century-old store of Bahrain Bank eventually collapsed. On the surface, the bankruptcy of the Bahrain Bank was only dragged down by the miscalculation of the Lisen transaction, but this is only the tip of the iceberg. The real reason is that the internal control of the Bank of Bahrain has exposed a fundamental loophole. First of all, Li Sen's qualifications for trading agents and funding arrangements are obviously not in compliance. If Li Sen is only a trader and has no right to arrange funds, even if Li Sen loses all the funds within a trader's authority, he will not bury a strong bank. Secondly, Li Sen repeatedly used a "88888" wrong account to cover up the fact that his trading mistakes were not discovered, and opened the green light for his unscrupulous violations in the future. Finally, according to Li Sen’s request, the Bahrain Bank’s headquarters has transferred a large amount of 500 million pounds of huge funds into Singapore to participate in speculative trading. This is even more ridiculous, which even exceeds the 470 million pounds of equity capital of the Bank of Bahrain. In the end, when the Nikkei index fell sharply, the Bank of Bahrain lost a total of 860 million pounds. At this point, any crisis disposal measures have been unable to return to the sky. For banks, the fundamental to eliminating the crisis lies in improving internal control. Of course, this does not mean that the disposal method is not important. For some crisis events with relatively limited losses, timely and decisive disposal still has positive significance.
Societe Generale: Rapid disposal to avoid loss expansion
In 2008, Societe Generale 601166, Buy (601166, shares the "Devil Trader Case" treatment reflects its strong crisis handling ability. On January 18, the legal person of Societe Generale found a violation of the transaction Reported to management, the management immediately notified the Bank of France; on January 19, the operator behind the signing of the false transaction by Societe Generale was a hedge trader at the Paris headquarters; on January 20, the management of Societe Generale confirmed all violations. The trading position and the overall profit and loss degree, decisively decided to close the position as soon as possible before the official notification to investors; from January 21st, the long position of more than 50 billion euros was sold out for three consecutive days, avoiding further losses and ultimately controlling losses. 4.9 billion euros; on January 24, Societe Generale sued the bank for the bank to falsify bank records and use forged accounts; on January 25, Bohinj Bank CEO Budong published full-page advertisements in major French newspapers. Shareholders and the public apologized, the board of directors of Societe Generale also decided to implement a capital supplement program of 5.5 billion euros to cover losses and restore payment capacity. Societe Generale also strengthened Contact with the government and regulatory authorities to win support at the national level. After a series of crisis measures, Societe Generale reversed the passive situation in a relatively short period of time.
Bank of East Asia : Timely clarification of information to avoid greater losses
On the evening of September 18, 2008, the Bank of East Asia issued a statement saying that a trader’s unauthorised manipulation of derivatives suffered losses, reducing the company’s after-tax profit from HK$930 million to HK$821 million. The Bank of East Asia emphasized in the statement that the incident was an individual incident. But the next day, news about the Bank of East Asia’s financial problems quickly spread through mobile phone text messages. Some members of the public believed that the Bank of East Asia had a financial crisis due to the large number of Lehman Brothers bonds. Affected by this, the Bank of East Asia soon had a small-scale run-off. The Bank of East Asia held a press conference on the afternoon of the 24th. The management team came forward to clarify the facts. Together with the cooperation of the Hong Kong police, the Hong Kong Monetary Authority and business leaders, the risk of large-scale run that may have erupted has finally subsided. Banks in front of each outlet returned to normal. The process of handling the sudden crisis in the Bank of East Asia shows that the first time to communicate with the main media, the first time the management issued an authoritative statement to fill the information vacuum, and strive for understanding and support from all parties, so that the bank can save more after-the-fact remediation costs. .
Inadequacy of the emergency disposal mechanism of Wells Fargo
The Finnish Bank account fraud case continues to this day, indicating that Wells Fargo’s disposal mechanism after the crisis has urgently needs to be strengthened. One is to apologize for lack of sincerity. Although President of the Wells Fargo, Stanford, expressed his apologies to bank customers and the public at the US Senate hearing, the US Republican and Democratic senators who participated in the hearing criticized their sincerity, because Steve himself did not take any responsibility. Actual responsibility has not been expelled from any bank executives. Wells Fargo announced a $185 million out-of-court settlement fine to the US government, which is equivalent to three days of earnings at Wells Fargo. Second, it is difficult to get approval. After discovering the fraudulent behavior of the account, Wells Fargo did not reflect on the problems of its own corporate culture in a timely manner. Instead, it emphasized that Wells Fargo’s “no motive for doing bad things†blamed the employees for “pursuing performance upgrades†and said that in recent years After dismissing 5,300 employees involved, it is inevitable that the public will be shirked. The pledge of Wells Fargo’s account has been happening since 2011, but it was only exposed after five years. The scope of the employees involved is so wide, the duration of the illegal operation is so long, and it has not been comprehensively rectified in time. It is partly due to the negative incentives of the performance and management system of Wells Fargo’s corporate performance and management system. It is obviously impossible to push the main responsibility to the individual employee.
At present, Wells Fargo has been completely passive in responding to the fraud incident. On September 26, the media reported that Wells Fargo faced a class action lawsuit against shareholders and fooled investors when it was accused of selling products. On the same day, the US Department of Labor also announced that it would conduct a thorough investigation of Wells Fargo from top to bottom, and dig deep into whether Wells Fargo’s internal bank still There were other violations of labor law; on September 29, California made a decision to suspend Wells Fargo's bond underwriting and investment business. This series of passive situations is largely due to the failure of Wells Fargo to take responsibility for the first time after the fraud cases were exposed. It did not actively reflect on the bank sales model and internal control loopholes, and thus failed to obtain shareholders, the public, the media and supervision. Departmental understanding.
Enlightenment to China's banking industry
Reinvent the emergency response mechanism. The first is to formulate a crisis emergency response plan and clarify the basic framework and responsibility allocation. Pre-categorize the types of risks that may suddenly erupt, and configure different disposal plans and responsible persons. To ensure that the crisis occurs, the response can be initiated in the shortest time, and the responsible person of the counterpart department will clarify and take responsibility. Second, the bank's reputation risk management department should move the gate forward and establish a public opinion risk warning system to instantaneously capture and instantly identify the risk information in the Internet context, so that the senior management can make decisions as soon as possible. The third is to establish a good cooperative relationship with the mainstream media. The first time after the crisis, it will be able to contact the influential mainstream media and occupy the highlands in order to play a correct guiding role in the development of the situation. The fourth is to establish a good official communication channel, pay attention to maintain a smooth reporting channel with the government and the regulatory authorities, and send the real information upwards in the first time to prevent regional and systemic financial risks.
Reshape the reputation value of the bank. First, do a good job in building the top-level design of the reputation value reconstruction system. Clearly promote the composition of the team and the lead department, and develop relevant rules and regulations and operational procedures. Second, in the construction of corporate culture, it is necessary to let the managers and department employees at all levels deeply understand the importance of the reputation value concept. The third is to implement a reputational and reputational value employee training program to strengthen the brand reputation of the bank. Strengthening the cultivation of a reputation- and brand-oriented corporate culture for employees, so that employees realize that reputation value is closely related to bank development and their own interests, and establish employees' reputation risk and reputation value awareness.
Reshape internal control management. First, improve the internal control mechanism and strengthen the full business process supervision system. The content covers all levels of institutions, products, and business processes. The responsible persons at all levels are responsible for the business risks of the departments at the same level. The employees of the cadres are attached to the risk awareness, and everyone becomes a “risk officerâ€. In addition, third-party authorities can be introduced when necessary to conduct a dynamic assessment of risk management. The second is to establish a sound risk management assessment mechanism to balance the relationship between performance and risk. Reasonably formulate performance appraisal standards to avoid “moral hazardâ€; employees who have outstanding performance in bank risk management, especially those who find that risks can be processed and reported in a timely manner, should be rewarded, and those who do not care about risks or even actively manufacture Risky employees are given disciplinary action in a timely manner. The third is to optimize the risk management personnel training mechanism. Judging from the sudden crisis of international banks, many risks are caused by traders' illegal operations. Mainly because of the high level of expertise in this business area, non-professionals are often difficult to identify. When an employee who violates the rules realizes that the misappropriation of funds and fictional accounts will not be easily discovered, they will take risks and will not be discovered until the loss is huge. To this end, it is necessary to build a risk supervision team that understands business and can manage, and can identify risks in the transaction and account areas as early as possible.
(Author: Jiangxi Bank Strategy Research Institute)
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