Bank Earnings & Risk

Welcome back to the Risk Queue,

This week Financial Firms report out third quarter earnings and the risk that’s keeping them most concerned. Also the SEC has published its 2024 exam priorities, last week we shared what the OCC supervision operating plans for the upcoming year. Last the Chief Compliance Officer has a massive upcoming regulatory agenda to deliver.

Lets get to it,

Naeem Qasim

CEO & Founder, Risk On Q

Risk Headlines

Bank Earnings Provide A Positive Start To Earnings Season- Source Forbes.com

Key Points:

• While several major banks have posted stronger than predicted earnings this quarter, we must view these results cautiously. The temporary boost from net interest income and capital markets may overshadow concerning macroeconomic trends. JP Morgan CEO Dimon believes geopolitics is the world’s biggest risk.

• As interest rates continue rising, expect a material slowdown in loan demand across both consumer and commercial segments. Meanwhile, vulnerabilities in the commercial real estate sector remain unresolved. Various banks have significant exposures to risky CRE loans made during the low rate environment.

• The earnings appear robust for now but the operating environment is growing more challenging. Slowing loan growth, CRE credit risks, Capital/Regulatory pressures and other late-cycle dynamics could strain bank profitability moving forward. Firms must monitor these exposures closely and ensure appropriate risk mitigation strategies are in place to protect the balance sheet if conditions deteriorate further.

You can read the full story at Forbes here. 

A. I. Risk / Technology Risk

NIST AI Risk Management Framework - Source NIST.gov

The NIST AI RMF is designed to help manage risks associated with AI for individuals, organizations, and society. It encourages the incorporation of trustworthiness considerations into the design, development, use, and evaluation of AI products, services, and systems.

Tech Leaders Discuss Potential of AI and Its Risk - Source WSJ.com

The WSJ Tech Live conference highlighted the transformative potential of AI across sectors but also the risks if deployment outpaces research. Risks were raised about AI hallucinating false information, perpetuating biases, and displacing jobs. Government regulation is lagging behind AI advancements, speakers called for more agency involvement in setting AI safety standards and protections.

U.S. Government Discloses More Than 700 AI Use Case and Promises Regulations -  Source Fedscoop.com

The federal government is clearly embracing AI in its operations and service . The number of use cases underscore the need for clear processes and regulatory guardrails, adequate governance, controls, and risk management of AI deployment will be key for ongoing success. A rigorous AI oversight within agencies, including audits of development practices and algorithmic impact assessments should become top priority.

Fines, Losses, & Rules

SEC Commissioner Mark Uyeda Remarks On The Daunting Number Of Upcoming Rules to Be Met- Source SEC.gov

A must read for all Firms as the Commissioner highlighted the past 2 years have seen an unprecedented number of new and amended SEC rules affecting firms. Rapid succession of compliance dates. The compliance deadlines for these new rules do not provide firms much time to implement changes. There is a daunting calendar of deadlines between now and 2025 that compliance professionals must meet.

The volume of rules combined with tight deadlines will stretch resources. Smaller firms may face disproportionate costs and barriers. Firms are struggling to hire and retain compliance staff. I agree with the Commissioner that regulators must be realistic about implementation challenges facing the industry during this period of intense regulatory change.

Emerging Risk

SEC Releases 2024 Examination Priorities  - Source SEC.gov

Risk Data to Geek Out On

The U.S. Financial Regulators: A Look AT SEC: Securities & Exchange - Source Google.com

Last week we are taking a look the US financial regulatory bodies and their key responsibilities, regulations, and some of the the larger fines they have imposed, below are the images from last week. This week are taking a look at the SEC specifically and some the key stats for your knowledge. Below is the SEC 2023 Organization Chart.

• The SEC consists of five divisions and 23 offices. Their goals are to interpret and take enforcement actions on securities laws, issue new rules, provide oversight of securities institutions, and coordinate regulation among different levels of government.

• The SEC oversees more than 40,000 public companies, 7,000 broker-dealers, and 11,000 investment advisers.

• The U.S. securities markets are the largest in the world, with a total market capitalization of over $60 trillion.

• In 2022, the SEC filed over 400 enforcement actions and returned over $1 billion to investors.

• Oversee 24 national securities exchanges, 9 credit rating agencies, 7 active registered clearing agencies, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC), and the Financial Accounting Standards Board (FASB);

• In 2022, the SEC received over 10,000 tips from whistleblowers, which resulted in over $100 million in awards to whistleblowers.

• The SEC's Investor.gov website received over 100 million visitors in 2022.

Your Input 

Thanks for reading.

Until next time!

Naeem

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