Back in the day, as in before the financial crisis, risk officer got little to no respect by the banks that employed them. Possibly even less respect than their colleagues in HR, who could at least strike fear into hearts with merely a tap on the shoulder and a nod in the direction of the conference room. They mostly blended into the furniture, and their opinions and recommendations were given slightly less weight than the office plants. Then the risk takers made some “disastrously wrong” bets, throwing the global financial system into a pretty bad situation, and now? When the risk officers talk? People actually acknowledge that words are coming out of their mouths, instead of staring blankly at them and then doing whatever the hell they want.
At Wells Fargo, some executives pushed last year to relaunch a program letting homeowners get a line of credit secured by the equity in their house—and pay only the interest due on the loan. Such credit lines have been scarce since the financial crisis, but the executives saw them as a way to boost revenue as housing prices climb. The bank’s chief risk officer, Michael Loughlin, said no. He proposed requiring regular payments that shrink the borrower’s debt over time and didn’t budge when told Wells Fargo might lose business to other lenders. The other bankers agreed to go along with his decision.
“Five years ago, if the risk group recommended against a strategy or product, it might just be one part of a debate,” he says. Now, “when we say no, it’s usually no.” Mr. Loughlin is an example of the naysayers who are gaining power and multiplying in number across the U.S. banking industry as financial institutions bend to pressure from regulators to make their operations safer and simpler following the financial crisis that began in 2008.