The Unseen Danger: How Banking Risks Thrive in the Gaps Between Committees
In the meticulously structured world of modern banking, failure rarely stems from undiscovered risks. More often, it emerges from a dangerous limbo—the spaces between clearly defined committees, reporting lines, and functional responsibilities. This is the central argument of a new analysis examining the structural vulnerabilities within large financial institutions.
On paper, governance appears flawless. Committees are established with clear mandates, risk frameworks are reviewed annually, and board reports arrive punctually. Yet, some of the most consequential threats—from third-party dependencies and data integrity to operational resilience—do not fit neatly within these boxes. They exist in the handoffs between technology and operations, policy and execution, central functions and front-line teams.
"We've created a system that is brilliant at managing what it can categorize, and blind to what it cannot," says Dr. Gulzar Singh, author of the report. "A reconciliation break resolved manually isn't flagged. A system 'under review' isn't escalated. Individually, these are manageable workarounds. Collectively, they form a pattern of embedded risk that no single committee owns."
The problem intensifies as banks grow. The rational response to complexity is often more structure: new cross-functional committees, working groups, and steering forums. Paradoxically, this can dilute ownership further. When a risk touches multiple committees, it often belongs fully to none. Decision-making slows not from disengagement, but because no single forum feels authorized to act decisively.
This creates a culture of "polite governance," where risks are acknowledged but urgency dissipates across layers of review. Front-line teams adapt with local fixes, while senior leaders, incentivized to manage only their formal remit, become cautious. The risk itself morphs from a discrete event into a normalized pattern—a recurring exception, a permanent workaround.
Boards often encounter these risks only when they crystallize into a regulatory issue or customer impact. The question then shifts from "Where did this come from?" to "Why didn't we see it earlier?" The uncomfortable answer, the analysis suggests, is that the risk was visible everywhere but owned nowhere.
The solution, according to the report, is not more committees or reporting. It is "explicit ownership at the seams"—recognizing systemic risks that cut across traditional structures and assigning clear, decision-ready accountability for them. The strength of an institution, it concludes, is visible not in its frameworks, but in how it handles the risks that don't fit neatly anywhere.
Industry Reaction
Michael Thorne, Former Chief Risk Officer at a major European bank: "Singh has nailed a pervasive, silent issue. We spent millions on risk systems but often missed what was festering in the gaps. The board must ask different questions: not 'Is this being managed?' but 'Who, exactly, would act if it deteriorates tomorrow?'"
David Chen, Fintech Compliance Advisor: "This is a timeless governance challenge, now amplified by digital complexity. The analysis rightly points to ownership clarity over structural sprawl. However, I'd add that new data analytics tools can now help map these 'risk seams' proactively."
Sarah J. Miller, Banking Analyst & Frequent Critic: "This is a damning indictment of bureaucratic complacency. Banks pat themselves on the back for their color-coded board packs while the real risks multiply unseen. 'Polite governance' is just a euphemism for negligence. How many more 'unforeseen' failures do we need before this is treated as the crisis it is?"
Professor Aris Demetrou, Governance Scholar: "The human dimension highlighted here is crucial. Incentive structures actively discourage managers from stepping outside their lane. We need to reward those who flag interstitial risks, not penalize them for 'overstepping.'"
Dr. Gulzar Singh, Chartered Fellow – Banking and Technology; Director, Phoenix Empire Ltd.
This analysis was originally published by Retail Banker International, a GlobalData owned brand.
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