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Top Management Team Updated: 08 Nov 2018

BBVA Compass Chief Risk Officer Javier Hernández on the role of Risk in the 21st century

BBVA Compass Chief Risk Officer Javier Hernández has a long history with BBVA, the parent of BBVA Compass, having joined the bank in 1998. Since that time, he’s been through financial up and down swings, as well as watched the dawn of the tech revolution in finance - all of which has given him an unbeatable perspective on the function of risk in such times. He sat down with External Communications to tell us more about his role, the evolution of Risk Management and the impact of digital.


Tell us a little about your experience with the BBVA Group in the Risk function.

Hernández:  I joined the BBVA Risk Management team right after the merger between BBV and Argentaria in 1999. I had various responsibilities in the Global Risk Management department, including global risk assessment, risk integration, economic capital and stress testing. I also led the Basel II implementation effort across the group. After leading the Global Risk Management department within the Risk Management organization, I joined BBVA US as Chief Risk Officer in 2009 and have been in that position since that time. As Chief Risk Officer in the US, my responsibilities include BBVA Compass, the BBVA NY Branch and all other BBVA US Operations.


How has the Risk function changed over the years that you’ve been part of it? How is it the same or different than it is in other countries compared to the US?

Hernández: The essence of Risk Management has not changed, but there are two areas that have evolved significantly. The first is the availability of data and the opportunities that technology increasingly provides, which is a more technical approach to risk management using more sophisticated models to support the decision making process. The second is the evolution of regulation, both in Europe and the US, where regulatory expectations have risen significantly, especially related to stress testing, liquidity management and capital adequacy assessment.

In the countries were BBVA operates, we have a global set of risk management policies and a risk appetite framework that apply equally. We then adapt global policy and framework taking into account local realities and regulations.


How did the global financial crisis change how banks look at Risk?

Hernández: The global financial crisis was a wake up call and an important reminder about the importance of sound risk management practices in banks.

It also gave banks and risk managers valuable information and data points about certain key areas, including: impact of risk concentrations; “bubble” creation and bursting; importance of sound liquidity management to be prepared for unexpected events; and, connectedness between markets and entities that were seemingly less correlated.

Having said that, no two crises are the same, and each tends to take a different shape and have different triggers.  History also reminds us that human memory is fragile. Human behavior contributes to the creation and bursting of bubbles and, in risk management, we are constantly fighting to manage uncertainty and strike the right balance between managing risks and opportunities.


Javier Hernández serves as chief risk officer of BBVA Compass and BBVA USA. He is responsible for the development and implementation of the enterprise risk management program and its integration in the day-to-day management of BBVA’s operations in the U.S.

Do you anticipate increased regulation as we move into a new decade, and if so, what impact will it have on Risk?

Hernández: There has been increased regulatory focus in Europe and the US since the financial crisis, and also an enhanced focus on consumer protection. There will always be debate between the benefits of financial regulation versus the impact it has on banks’ abilities to efficiently provide financial services that are critical for the economy. The pendulum can move in one direction or the other depending on cyclical and political considerations. I don’t anticipate in the medium term a significant increase in regulation, but the areas of attention may change depending on the drivers of the next recession. From Risk, it is part of our mission to work toward compliance with the different regulatory standards and also support regulators in their understanding of risk profile and drivers.


Continued adoption of digital is changing many of the bank’s traditional functions. How has digital impacted Risk?

Hernández: Digital transformation is impacting Risk Management in several ways. Digital channels clearly bring tremendous opportunities to better serve our customers, but they also bring new risks, including around data privacy, cybersecurity and fraud. In this new environment, non-financial risks are gaining more relevance and they  present more challenges in terms of quantifying and setting specific tolerances. Financial institutions that are ahead in managing those risks can develop a competitive advantage in digital channels.

The partnership between the front line and control functions, such as Compliance, Legal and Risk, is critical for the identification, assessment and mitigation of risks related to new digital products and services. The partnership must start with the early engagement of control functions in the initial stages of alpha and beta pilots and continue through the development of minimum viable products and further enhancements. Then, there needs to be ongoing assessment, mitigation and control testing through the life of the products.


What technology do you think will be most beneficial to Risk?

Hernández: The immediate benefit that new technologies and data sources bring is the possibility of more automation in the decision making process. This allows real time decisioning, which is critical in digital channels. The benefits of automation are tangible particularly in standardized consumer lending products.

We are also seeing some applications of advanced analytics that can bring benefits in different areas such as fraud modelling, credit modelling or AML alert generation. Machine learning and artificial intelligence, together with new data sources, will bring tremendous benefits for the risk function and the banking industry.

Those new models bring some challenges as far as understanding the decision making process inside the model and validating that the models are working as intended, but the benefits far outweigh the challenges. Between banks and regulators, I’m certain we will find a way to manage the intrinsic model risks within regulatory expectations.

Finally, I believe robotics is also an area that can improve productivity over time in end-to-end risk management processes.


Why did you choose Risk as your profession?

Hernández: Some of my favorite topics when I was a student were econometrics and statistics. I also had an early interest in how the financial system worked and its connection with macroeconomy. I worked for some years in the Bank of Spain Research department and it afforded me the opportunity to join one of the largest banks in Spain in the Risk Management department. Because risk management is about managing uncertainty and is a core competency for financial institutions to succeed in the long term, it fit interests well. So, I decided to continue my career around different responsibilities in risk management.


What do you look for in Risk professionals?

Hernández: Risk Management entails a myriad of areas, such as retail credit risk, wholesale credit risk, market risk, non-financial risks, risk analytics, control units or enterprise risk management. All of them require particular skill sets, career requirements or experience. Something that I really value across the board is the curiosity and willingness to learn and grow. Well-rounded risk professionals usually have experience in different areas, and many times in other areas outside risk, including the front line. Being entrenched in the company's culture is also critically important. So, team members who believe in our three core values, One Team, Customer First and Think Big, is vital.


How does being part of a global bank benefit the U.S. Risk department of BBVA Compass?

Hernández: BBVA is a very strong global bank and one of the leaders in the transformation of the financial system. That is a great foundation for our franchise in the US. In particular, in BBVA’s Risk Management, there are outstanding professionals in the global units and across the BBVA’s footprint, which allows the US to benefit from our global capabilities. Some areas where this is important include data, analytics and development of global risk tools. We leverage the experience of different countries, and we also try to contribute to it. We see ourselves as a single and global Risk Management team and, to me, that is a strength.