the burden associated with such reporting. i can assure you, we recognize banking organizations'investment in and commitment to compliance with regulatory requirements, including those imposed by anti - money - laundering and counter - terrorism regulations. the federal reserve will continue to work with our counterparts in the federal government to encourage enhanced feedback on how reporting is contributing to our common fight against money laundering and terrorism. operational risk over the past few years, the federal reserve has been increasing its focus on operational risk. for many nonfinancial organizations, the largest share of enterprise risk is likely to be operational risk, as opposed to credit and interest - rate risk. banks have learned much from the practices that nonfinancial firms have developed over the years. operational risk has more relevance today for bankers largely because they are able to shed much of their interest - rate and credit risk through sales of loans, use of financial derivatives and sound models to manage the risks that are retained. further, the revenue streams that are growing the fastest are increasingly related to transaction processing, servicing accounts, and selling sophisticated financial products. to be successful, organizations must have complex systems to execute these activities. banks are also utilizing advanced models to estimate and manage credit - risk and market - risk exposures. growing use of sophisticated models requires stronger risk - management practices since weaknesses in the models'operational design and data integrity can lead to significant losses. thus, effective risk management requires financial institutions to have more - knowledgeable employees to identify system requirements, monitor their effectiveness, and interpret model results appropriately. we have learned quite a bit about operational risk from our examinations of banking organizations. for example, during routine examinations we look at the adequacy of banks'procedures, processes, and internal controls. such reviews include transaction testing of control routines in higher - risk activities. for example, a bank's wire transfer activities and loan administration functions are often targeted for review, and our experiences have identified some common weaknesses in operational control that are worthy of attention. with wire transfers and similar transactions, a banking organization could suffer a significant financial loss from unauthorized transfers and incur considerable damage to its reputation if operational risks are not properly mitigated. a few recurring recommendations from our reviews are to ( 1 ) establish reasonable approval and authorization requirements for wire transactions to ensure that an appropriate level of management is aware of the transaction and to establish better accountability ; establish call - back procedures, passwords, funds transfer agreements, and other authentication controls related to customers'wire transfer requests

susan schmidt bies : a supervisor ’ s perspective on enterprise risk management remarks by ms susan schmidt bies, member of the board of governors of the us federal reserve system, at the financial women ’ s association washington briefing, washington dc, 12 june 2006. * * * thank you for the invitation to speak here today. i am impressed by the range of interesting subjects covered in your program, and i hope that my remarks on enterprise risk management will be informative as well. today i will look at some recent cases in which we believe bankers and supervisors have learned some key lessons about enterprise risk management, or erm. these lessons demonstrate how good risk management increases business efficiency and profitability. naturally, what we've learned from the banking industry can be more broadly applied to other industries and sectors. indeed, one could argue that erm can improve management of many different types of entities, including government agencies and nonprofit organizations. but before i start discussing particular examples, i want to take a step back and give you my thoughts on erm generally. general thoughts on enterprise risk management the financial services industry continues to evolve to meet the challenges posed by emerging technologies and business processes, new financial instruments, the growing scale and scope of financial institutions, and changing regulatory frameworks. the federal reserve, as the supervisor of state member banks and bank and financial holding companies, has been working with other regulators and financial institutions to improve the effectiveness and relevance of regulation and supervision in this changing environment. the federal reserve has long emphasized the need for appropriate and strong internal controls in institutions we supervise, and we have taken a continuousimprovement approach to our risk - focused examinations. for many years, enterprise risk management across multiple organizational units within an entity has received increased scrutiny. in some cases, firms may be practicing good risk management on an exposure - by - exposure basis, but they may not be paying close enough attention to aggregation of exposures across the entire organization. rapid growth can place considerable pressure on, among other areas, an organization's management information systems, change - management controls, strategic planning, credit concentrations, and asset / liability management. an organization must also understand how its various business components, some of which can be quite sophisticated and complex, dynamically interact. a successful erm process can help an organization to meet many of these challenges. of course, enterprise risk management is a fairly broad topic that can mean different things to different people. for our purposes here today, i will define er