Reputational risk is the potential for damage to an organization’s character or good name. If a bank or financial institution is hit with an incident that puts a mark on its reputation, the event could compromise the company’s perceived legitimacy, thus affecting the number of current customers, prospective customers, shareholders, and the stock price. And because information is disseminated online and through social media so rapidly, this type of event could cause reputational harm almost immediately.
That’s why reputational risk management (RRM) in financial institutions is so critical today. RRM is the process of avoiding or mitigating the potential loss of an organization’s character, and it is something more and more senior executives—from board members and the executive management team down to the CIO and CISO—are increasingly concerned about. And rightfully so! All of these individuals want to know the company is doing everything to avoid an incident that could cause long-term reputational damage to their company.
The Center for Financial Professionals conducted an interview with Maria Leistner, Credit Suisse's managing director and chair of the Reputational Risk Committee, on why reputational risk management in financial institutions is critical today:
“Reputational Risk has always been of significant importance for financial institutions, but its focus has changed over time. Post financial crisis, it needs to address views and potential concerns of an increased number of stakeholders. We now operate in an environment where “should we do it” has to be the prism through which we need to consider any dealings with counterparties and transactions. The reputational risk has also now become more than ever a responsibility of everyone else working for a financial institution. Many financial institutions are working on embedding the reputational risk awareness as part of changing their culture.”
