Shielding a bank from risk has become such tricky business that most banks cannot even figure out how much it costs, a survey released Thursday by Ernst & Young found.

The survey, titled "The Future State of Governance, Risk, and Control," found 54 percent of banks cannot estimate how much they spend on risk management annually.

The models banks have developed to assess their risks and comply with regulations are "fragmented, inefficient and lack the flexibility to effectively support the pace and complexity of new regulatory and compliance requirements," the report said.

The study surveyed 28 banks with $22 trillion in collective assets. These banks, scrambling to comply with controls and regulatory requirements like Sarbanes-Oxley, created "a labyrinth of systems and silo-based infrastructures that are unwieldy."

"Many CEOs and CFOs could not really quantify how much money was actually being spent," said Dan McKinney, a partner in Ernst & Young's financial services advisory.

Failure to adequately control risk present a major threat to banks' reputations and cash, the report said.

McKinney said many banks are trying to implement a strategy of risk management known as "risk convergence," which means integrating risk controls to avoid overlap and gain a more comprehensive understanding of risk throughout the bank.

Merrill Lynch & Co.'s report for the third quarter on Wednesday highlighted how difficult it is for banks to assess and manage risk.

With the mortgage industry in upheaval, Merrill Lynch - like all the major banks - knew its mortgage debt and investments backed by home loans were worth less this year than they were last year. Just how much less was not easy to determine.

Only three weeks ago, Merrill Lynch said it expected the mortgage crisis to siphon $4.5 billion in value from the bank's portfolio. On Wednesday, Merrill stunned the market when it said it had miscalculated and its charges were actually $7.9 billion.

Buckingham Research Group analyst James Mitchell wrote in a client note Thursday the charge reflected "a significant breakdown in risk-management."

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