Exploring Practical Dynamics of Reputational Risk: A comprehensive discussion on reputational risk
We are pleased to release a white paper on 'Exploring Practical Dynamics of Reputational Risk: A comprehensive discussion on reputational risk' that was co-authored by Dr. Robert (Bob) M. Mark and Mark J. Dougherty. We've partnered with Bob and Mark to issue this paper.
Reputational risk is important for firms of all sizes. Firms will benefit from the reputational risk approach described. The central focus of this paper is that sophisticated reputational risk analysis is indispensable for the assessment of risks in financial institutions. The approach described in the paper helps to quantify reputational risk for various purposes, including capital attribution and will support improved management actions to control reputational risk. We hope that the points outlined will serve as a catalyst for discussion and ongoing dialogue about the importance of reputational risk management.
This document is published as a working draft. We encourage you to share this working paper with colleagues and other risk management professionals. We look forward to obtaining feedback.
InteDelta is an implementation partner with Bob and Mark who developed a practical reputational risk model. We would be happy to discuss with you how we can jointly assist in embedding a reputational risk framework within your organisation. This can include:
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Providing educational programmes on reputational risk.
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Completing a reputational risk 'health check' which would encompass firstly a comprehensive analysis of the capability of the institution to manage reputation risk including the identification of any gaps. The second step in the health check would be a three-dimensional benchmarking exercise covering policies, methodologies and infrastructure.
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Calculating the impact of reputational risk on capital as well as other financial statement categories such as Earnings per Share (eps), Share Value, Net Income, Balance Sheet and Cash Flow related items. Key points are as follows:
- Significant reputational risk exposure could cause insufficient capital to be held.
- There is little to no authoritative guidance written on how to quantify the capital required for reputational risk.
- The methodology designed by Bob and Mark helps firms assess and quantify the required capital resources to help manage reputational risk.
- The model quantifies reputational risk and determines its capital implications and requirements. This quantification of reputation risk capital helps ensure that your firm's capital resources are reasonably and appropriately assessed.
- The approach helps organisations to understand what drives each firm's unique reputational risk profile since reputational risk events are firm-specific.
- The methodology and bespoke approach provides an important tool for Executive and Senior Management in banks and other financial institutions to manage their unique reputational risk profile.
- The reputational risk model can be used for both economic and regulatory capital purposes. If reputational risk is material then it can be included in pillar 2 as an 'other risk' in the Internal Capital Adequacy Assessment Process (ICAAP).
