Banking institutions have been placing a high focus on coming up with new best practice solutions for improving their risk management processes in response to the recent financial crisis.

This is according to a new study by the Risk Management Association (RMA) and McKinsey and Company, which observed many organisations have been looking to shore up weaknesses that were exposed for the first time as a result of the recession.

The fallout from this, as well as increased regulatory scrutiny in the last few years, has led to risk professionals at financial institutions shifting from their traditional focus on measurement, compliance and control to placing a forward-looking view at the heart of decision making, both in the boardroom and throughout the organization.

Director of enterprise risk at the RMA Mark Zmiewski observed that it will be "critical" for banks to get ahead of fundamental changes in the way they deal with risk management.

He added: "The financial industry is struggling to integrate enterprise risk management into a coherent whole that reliably informs enterprise-level decisions. A strategic and holistic approach to risk management has become essential."

The research found that banks generally believe that they have progressed well so far in improving their enterprise risk management (ERM) capabilities, but more than half believe that they are not yet cutting-edge. Almost all respondents said they plan to make a "transformational change" in at least one area of ERM within the next 12 months.

While four out of five financial firms believe their efforts to integrate stress testing into their strategic decision-making has been successful, it was noted that the evidence from the research suggests there is still room for companies to do more.

The study added: "Banks perceive that the quality of their risk-related decisions and processes varies. The potential for improvement is especially significant in capital-allocation and talent-management processes."

Although companies are also more frequently exposed to non-traditional risks such as regulatory requirements and cyber security dangers than in the past, many current processes do not cover these adequately, it continued.