Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

Chapter 2How Do CFOs and CROs Add Value?

The CFOs and CROs of large, diversified financial services firms have the potential to significantly influence the strategy, operating performance and value of their firms, primarily through three areas of responsibility:

• strategic planning, capital allocation and performance management;
• balance sheet, liquidity and asset/liability management;
• risk management and underwriting.

These responsibilities are relatively new, generally acquired only over the past 20 years, and represent an evolution from their more narrowly focused forbears – the head of accounting and controlling as predecessor to the modern CFO and the transaction-oriented chief credit officer/chief underwriting officer as predecessor to the modern CRO.

The Evolution of the Corporate Center as “Shareholder Surrogate”

The evolution in roles is tied to the broader evolution of the corporate center within financial services firms: simply put, the role of the CFO and CRO was forced to change as firms became larger, more diversified and more complex. If you want to understand how to manage the value of a large, diversified bank or insurer, you have to begin by understanding the role of the corporate center and the roles of the CFO and the CRO within the corporate center.

From “Monolith”…

Prior to the 1980s, most financial services firms were purely domestic in orientation, operated and organized as if they were a single “bank” or “general insurance company,” which in many cases ...