Self-Insured by Default

Every bank that lends unsecured is an insurer of identity fraud. It never wrote a policy, never priced a premium, and in most cases never recorded a decision to take the risk. It simply holds the loss: inside credit capital, inside the allowance, and ultimately inside earnings.

No rule requires a bank to buy fraud loss insurance, and this paper does not argue otherwise. The argument is narrower and, for a board, harder to dismiss. Supervisory standards expect institutions to identify, measure and control their material risks, to estimate losses accurately, and to report them accurately. A risk that is booked, capitalized and modeled as something else strains all three. Now that identity fraud loss is insurable, retaining it is a decision, and it should be documented as one.

Written for chief risk officers, CFOs and board risk committees at banks and credit unions.

What’s inside

1. Banks already insure fraud. They just never priced it
2. What the rules actually say
3. A mislabeled risk is a supervisory problem
4. From unmanageable to transferable
5. Six questions for the board risk committee
6. What transfer does, and what it doesn’t
7. Turning a default into a decision