John F. Kirk’s Post

FDIC REVIEW OF 2023 BANKING RISK The 2024 Risk Review provides an overview of banking risks in 2023 in five broad categories: market risks, credit risks, operational risks, crypto-asset risks, and climate-related financial risks. The market risks areas discussed are liquidity, deposits and funding, and net interest margins and interest rate risk. The credit risks areas discussed are commercial real estate, residential real estate, consumer, agriculture, small business, corporate debt and leveraged lending, nonbanks, and energy. The discussion of operational risks examines the potential negative impact to banks from cyber threats and illicit activity. The crypto- asset risks section discusses the FDIC’s approach to understanding and evaluating crypto-asset-related markets and activities. The discussion of climate- related financial risks focuses on the physical risk of severe weather and climate events to the banking system. Monitoring these risks is among the FDIC’s top priorities.” (No open quote mark, sorry. I can’t scroll back to the top and type. LinkedIn seems to have bugs with cursor positioning in iPhone app.) Federal Deposit Insurance Corporation (FDIC) #cyberrisk #raterisk #creditrisk #climaterisk. #oprisk

Risk Define By the Risk Holder is the True Measure of Risk Value Says the Bank of International Settlements The Federal Reserve Board of Governors, Michael Barr, made the following statement as part of the proposed new capital requirements for mega banks in the U.S. – revealing the stunning news that the serially-charged mega banks on Wall Street have been allowed to use their own internal risk models to tell the Fed how much risk-weighted assets they have and, thus, how much capital they need to hold. Barr stated: “For a firm’s lending activities, the proposed rules would end the practice of relying on a bank’s own individual estimates of their own risk and instead use a standardized, but risk-based measure of credit risk. Standardized credit risk approaches do a reasonably good job of approximating risks, while internal models are prone to underestimate such risks. “Second, for a firm’s trading activities, the proposed rules would adjust the way that the firm is required to measure market risk, which is the risk of loss from movements in market prices. These changes are intended to correct for gaps in the current rules.” Relying on the mega banks that have been regularly charged with criminal acts and manipulating markets and who brought the U.S. economy to its knees with their financial crash of 2008, because their risk models were as helpful as a row boat in a tsunami, is yet one more clear indication that federal banking regulators have been completely captured by the Wall Street mega banks. The Committee sets out its proposals for an internal ratings based approach (the IRB approach) to capital requirements for credit risk. The Committee believes that such an approach, which relies heavily upon a bank’s internal assessment of its counterparties and exposures, can secure two key.The New Basel Capital Accord. The first is additional risk sensitivity, in that a capital requirement based on internal ratings can prove to be more sensitive to the drivers of credit risk and economic loss in a bank’s portfolio. The second is incentive compatibility, in that an appropriately structured IRB approach can provide a framework which encourages banks to continue to improve their internal risk management practices. In meeting these objectives, the Committee is mindful that the IRB approach should continue to promote and enhance competitive equality across countries. The Committee is also mindful to ensure that the IRB approach should continue to promote safety and soundness in the financial system and, consistent with providing incentive compatibility, that the structure and requirements of the IRB approach do not impinge up

Fresh off the presses is the 2024 Bank Risk Survey by Bank Director and Moss Adams. Surveying community banks, the survey found their top risks to be Interest Rate Risk, Liquidity Risk, Cybersecurity Risk, and Regulatory and Compliance Risks. Top strategic challenges included Deposit Pricing, Attracting and/or retaining talent, Evolving regulatory or compliance requirements and Liquidity management. Top areas of concern from bank regulators included: Liquidity planning/strategy, Interest rate sensitivity, Capital planning/strategy and Asset/liability management. Overall results seem consistent with expectations in this environment. Read the full survey at the Bank Director website link below. #banking #bankrisk #bankriskmanagement #risksurvey #riskmanagement https://lnkd.in/gCSBzpKW

🏦Today's corporate banks face a myriad of risks that can significantly impact their operations, profitability, and reputation. Some of the primary risks include: 📈📉📈📉📈📉📈📉📈📉📈📉📈📉📉📈 📌. **Credit Risk**: The possibility of borrowers defaulting on their loans, which can lead to significant financial losses for the bank. 📌. **Market Risk**: Exposure to adverse movements in market prices, such as interest rates, foreign exchange rates, and commodity prices, which can affect the bank’s trading and investment portfolios. 📌. **Operational Risk**: Risks arising from inadequate or failed internal processes, people, systems, or external events. This includes risks such as cyberattacks, fraud, system failures, and human error. 📌. **Liquidity Risk**: The risk that a bank will not be able to meet its financial obligations as they come due without incurring unacceptable losses. This can occur if there is a sudden withdrawal of deposits or an inability to access funding markets. 📌. **Compliance and Regulatory Risk**: The risk of legal or regulatory sanctions, financial loss, or damage to reputation due to failure to comply with laws, regulations, or codes of conduct. The regulatory environment is continually evolving, requiring banks to adapt to new rules and standards. 📌. **Reputational Risk**: The potential loss of reputation due to negative publicity, which can result from various factors such as poor customer service, ethical breaches, or involvement in financial scandals. 📌. **Strategic Risk**: The risk of adverse business decisions, improper implementation of decisions, or lack of responsiveness to changes in the business environment. This includes risks related to mergers and acquisitions, entry into new markets, and adoption of new technologies. 📌. **Cybersecurity Risk**: The increasing threat of cyberattacks and data breaches, which can result in financial losses, operational disruptions, and damage to customer trust. 📌. **Environmental and Social Risk**: Growing concern over environmental, social, and governance (ESG) issues means banks must manage the risks associated with environmental impact, social responsibility, and governance practices. This includes risks related to climate change, sustainability, and ethical business practices. 📌. **Geopolitical Risk**: Political instability, changes in government policies, trade tensions, and other geopolitical events can disrupt markets and impact the bank’s operations and profitability. Managing these risks requires a comprehensive risk management framework that includes robust internal controls, risk assessment and monitoring processes, stress testing, and a strong risk culture within the organization. #ChaseBank #BankOfAmerica #WellsFargo #Citibank #GoldmanSachs #MorganStanley #BarclaysBank #HSBCBank #DeutscheBank #CreditSuisse #McKinsey #BostonConsultingGroup #BainAndCompany #DeloitteConsulting #PwCConsulting #EYConsulting #KPMGConsulting #Accenture #OliverWyman

Fintechs and Sponsor Banks are getting more and more scrutiny from the Fed, OCC and FDIC. 3rd party arrangements carry risks and require clear risk management practices. Fintechs will no longer be able to ignore risk thinking sponsor banks will take it all on for the sake of growth, given sponsor banks' new challenges and how this market is evolving. https://lnkd.in/gjaD4cqD

Banking Resilience in Focus: Regulators Weigh In on Third-Party Relationships Ahead of a pivotal Capitol Hill hearing on May 15, top regulators provided testimony that underscored the banking industry's resilience following last year's Silicon Valley Bank (SVB) collapse. The hearing, centered on bank oversight, showcased a dual narrative. That is - a robust recovery but underlying risks persist with third-party relationships. The collapse of SVB sent shockwaves through the financial sector, prompting a comprehensive evaluation of banking stability. In the Acting Comptroller of the Currency, Michael J. Hsu, written testimony, he noted, “The banking industry has shown remarkable resilience. Capital and liquidity levels are robust, and stress testing has proven effective in identifying potential vulnerabilities.” Despite this positive outlook, regulators cautioned that risks remain, particularly as banks increasingly rely on third-party relationships. Hsu emphasized this in his remarks: “Banks’ relationships with third parties, including FinTech companies, continue to expand. Using third parties has significant potential benefits, but poor third-party risk management can hurt consumers, weaken banks, and contribute to an unlevel playing field.” The integration of FinTech solutions has revolutionized banking operations, enhancing efficiency and customer experience. However, it also brings challenges related to cybersecurity, data privacy, and operational risks. Regulators are particularly concerned about the need for robust third-party risk management frameworks, and more than ever to ensure these collaborations do not undermine financial stability. They advocate for enhanced oversight and more rigorous risk management practices. This includes updating regulatory frameworks to keep pace with technological advancements and ensuring banks have comprehensive strategies for managing third-party risks. In summary, while the banking industry has demonstrated commendable resilience post-SVB collapse, the increasing reliance on third-party relationships necessitates vigilant oversight, robust risk management, and safeguarding financial stability while embracing the benefits. #banks #risk #operationalrisk #riskmanagement #TPRM

📢 CCAR continues to be critically important for banks, as a negative outcome could impact their capital distribution plans. This year's exercise follows the context of recent bank failures and features new exploratory scenarios, attracting heightened attention to the results. This year's CCAR exercise also takes place against the backdrop of finalizing the Basel III Endgame, which is projected to increase bank capital requirements materially. Read more in our latest paper ⬇️ #FederalReserve #risk #banking #FinancialServices

📢 CCAR continues to be critically important for banks, as a negative outcome could impact their capital distribution plans. This year's exercise follows the context of recent bank failures and features new exploratory scenarios, attracting heightened attention to the results. This year's CCAR exercise also takes place against the backdrop of finalizing the Basel III Endgame, which is projected to increase bank capital requirements materially. Read more in our latest paper ⬇️ #FederalReserve #risk #banking #FinancialServices