Jeff Judy

Jeff's Thoughts - November 24 , 2010

Learning a New Language Can Be Good For You

There is plenty of evidence that learning a new language has many benefits. Not only do improvements show up in a number of cognitive skills, but there are very direct advantages to knowing an additional language, namely:

  1. you can communicate with people in, or from, another land, and
  2. language influences how we perceive the world around us, and can help us see things we would otherwise miss.

If you are a tourist visiting a foreign land, that ability to communicate is of great practical value. Meanwhile, the new way of seeing things your second language gives you is, perhaps, part of the fun of traveling.

Well, we are all headed into new lands, and unlike tourists, we do not have much choice. The regulators who oversee our industry are mapping out a new landscape, particularly in regard to risk, and they are starting to speak a different language. And banks that do not take the trouble to learn that new language are going to have much more difficulty communicating with their regulators.

The language in question is "Enterprise Risk Management" or ERM. While ERM is still evolving, it is a comprehensive approach to risk management in any organization, not just for financial services. Its distinguishing feature is that it scans a much broader horizon to detect risk.

So, for a bank that embraces ERM, credit risk is just a starting point. Legal risk, liquidity risk, reputation risk, and, indeed, regulatory risk are just a few of the elements that can come together in an organization and create a "perfect storm" of risk that leads to substantial damage, even though any one of those elements might be a minor threat on its own.

Regardless of the particular idiom of ERM, it is clear that regulators are embracing it, far and wide. Consider:

In short, all the signs point to ERM being a part of your world, whether you like it or not, sooner or later.

I recommend assigning someone in your bank the explicit task of becoming your in-house ERM guru. Give that person the support needed to master this language and, especially, to help spread that thinking throughout the organization. I can assure you, it will be a good investment.

After all, smooth communications with regulators save you a lot of time and hassle. Let your rivals play catch up on ERM, as regulatory discussions continue to evolve in that direction.

Along the way, you may very well identify risks that you would not have seen otherwise. Your new way of talking about risk could reveal potential problems you can nip in the bud, so they do not combine with other risk factors to surprise you with a major threat to your success, or to your very survival.

They say travel broadens the mind. And when you do travel, it makes sense to learn some of the language they speak in your destination before you get there.

Broaden your perspective on risk by learning the language of ERM, and start now.