Strategic risk management: a tale of two strategies

2012 was a tumultuous year for international investment banks, not least because of the emergence of the LIBOR scandal, just as the world’s largest banks were emerging from the turmoil of the Global Financial Crisis (GFC). For two banks that had survived the GFC fairly well, Barclays and Deutsche Bank, the year was momentous as both experienced significant changes to the composition of their Boards and top management. In 2012, with some fanfare, both banks announced new Corporate Strategies: Barclays with its so-called 'Go To' strategy and Deutsche with its 'Deutsche 2015+' strategy. Following the failure of a number of high profile banks during the GFC as a direct result of their flawed strategies, banking regulators around the world have recognized the risks to the financial system that can arise from a 'too big to fail' bank embarking on a significant new strategy. These so-called 'strategic risks' can be considerable but the process of managing such risks is not well-developed. This paper compares and contrasts the way in which these two banks disclosed how they developed their different strategies and how strategic risks were identified and managed. The paper concludes that for Deutsche, strategic risks were identified as part of the development process and an attempt was made to measure, and to set capital to offset, potential losses due to strategic risks. On the other hand, the Barclays strategy is little more than an aspirational vision with few strategic objectives that can be independently monitored and, from their shareholder disclosures, no apparent attempt was made to assess and manage the not inconsiderable risks in the strategy that the bank was committing to.