Risk. Remember that?
It is all too easy to forget, what with stocks and bonds and housing for the most part a one-way trade higher for a couple of years, and plenty of easy money sluicing through the pipes of finance courtesy of central bankers.
Reminding financial institution directors of risk is Michel Maila's job. He is building a think tank in Toronto designed to teach directors of financial institutions the right questions to ask to ensure that risk remains front and centre.
Canada faces the danger of becoming all the more complacent about risk because of how well this country endured the financial crisis.
Mr. Maila's job as the head of the Global Risk Institute is to ensure that does not happen. The institute is rolling out multiple programs to ensure Canada is not coasting on its risk reputation.
"The stakes are now higher," he argues. The low interest-rate environment has changed the context, and that introduces "massive" new risks. In addition, there is re-regulation. "The bar has been raised on boards now to do a lot more.
To ensure Canada does not let its guard down, the institute has teamed with Queen's University to offer Canada's first graduate diploma in risk policy and regulation, and it is set to unveil a boot-camp program for directors.
"It's a funny dichotomy where Canada has deservedly a good reputation for good risk management – we had a good crisis as a combination of culture, executive management, board oversight, regulation – but that good track record hasn't been reflected in the educational side," he said. The goal is to train people who will work at the regulators and the banks.
"That makes it more likely that next time around we will have a good crisis too, no hits on the taxpayers for bailing out financial institutions," he said. It's not just about protecting the economy from potential downside. Good risk management is also about growth. The GRI is also about "maintaining a competitive advantage for Toronto and the rest of Canada as a place that gets it."
The risk institute has been around since 2011. It now has 12 professionals on staff. Membership so far is all Canadian, ranging from the six largest banks to the big pension funds to insurers such as Manulife Financial. At some point, the hope is to grow to a wider membership base beyond Canada.
In the director program, there is role-playing designed to force directors to confront risk questions. Being on the board of a large insurer or bank or money manager has never been more complex. Directors need not be risk officers, but they have to know the right questions and feel confident enough to ask them and demand solid answers. The goal is to get directors to an appropriate level of "risk literacy."
"The burden that the board members have in these financial institution is rising every day, so how can we help them?" said Mr. Maila.
In a December pilot of the program, with 16 financial institution board members in attendance, Mr. Maila played the role of a UBS executive pitching the bad idea to warehouse subprime mortgage securities that got the Swiss bank in trouble in the crisis.
"If you are the board members at UBS, what kind of questions could have caused a deeper discussion?" he said.
Mr. Maila is well equipped to play the role. He has a long résumé in risk. He was head of risk management for the International Finance Corp., part of the World Bank. Before that, he had roles overseeing corporate, market and operational risk at Bank of Montreal.
Some of the teachings are less about risk management, with formulas, than simply how better to schedule board meetings. When a business expansion is discussed, the risk debate should take place at the same time. Believe it or not, that is not always the case. Risk discussions can sometimes come at another, later meeting.
"It's all that sort of stuff that needs to be fixed."