Risk Headlines

Major Global Tech Outage Hits Banks & Businesses Worldwide -source wjs.com

Key Points:

The global tech outage exposes the vulnerabilities and interconnectedness of digital systems, emphasizing the need for diversified technological dependencies and comprehensive risk management strategies required across banking. This was triggered by a single update from cybersecurity provider CrowdStrike. This major operational disruption will likely provide some key insights or this should have not happened if established procedures were followed.

A.I. Risk / Technology Risk

IBM: What is AI in Banking? - source ibm.com

Key Points:

IBM highlights the multifaceted nature of AI in banking, showcasing both its potential benefits and the challenges that come with implementation. The benefits, such as enhanced customer experience and improved risk management, are significant drivers for AI adoption. However, the challenges, particularly in cybersecurity and legal uncertainties, underscore the need for careful strategic planning.

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SEC Oversight of Cybersecurity Challenged by Company - source wsj.com

Key Points:

The SolarWinds case highlights the increasing regulatory focus on cybersecurity disclosures and practices in public companies. While the partial dismissal of SEC claims suggests some limits to regulatory reach, the ongoing litigation and new SEC rules underscore the critical importance of accurate and timely cybersecurity disclosures. Banks must prioritize robust cybersecurity measures and transparent reporting to mitigate legal and reputational risks.

Regulatory News - Fines, Losses, & Rules

SIFMA’s Take on PwC’s US Basel III Endgame Assessment - source sifma.org

Key Points:

FINRA has issued a notice to brokerage firms regarding the compliance challenges posed by the adoption of generative artificial intelligence (gen AI) and large language models. FINRA advised firms to evaluate gen AI tools before deployment and ensure compliance with existing rules. This includes addressing technology governance, model risk management, data privacy, integrity, and the reliability and accuracy of AI models. The notice reiterated that FINRA’s rules are technologically neutral and apply to both proprietary and third-party AI tools.

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FINRA Publishes 2024 Industry Snapshot - source finra.org

Key Points:

FINRA has published its 2024 Industry Snapshot, an annual report detailing statistical data on registered representatives, brokerage firms, and market activities under its supervision.

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OCC Quarterly Report on Bank Trading & Derivatives Activities - source occ.gov

Key Points:

OCC provides a detailed analysis of the trading and derivatives activities of U.S. commercial banks and savings associations. The report includes data on trading revenues, credit exposure, and the notional amount of derivatives contracts. It also examines market risk, counterparty risk, and the overall health and trends in the derivatives market. The report is a key resource for understanding the financial stability and risk management practices within the banking sector.

Risk Data to Geek Out On

Fed Governor Micelle Bowman Speech on Liquidity, Supervision, & Regulatory Reform - source federalreserve.gov

Key Points:

Governor Bowman provides a comprehensive overview of the current state of banking regulation and supervision, with a particular focus on liquidity management and regulatory reform. It highlights several key areas of concern and potential improvement:

1. Liquidity Management: The article emphasizes the need for a holistic approach to liquidity management, considering various sources of funding including the discount window, repo markets, and FHLB advances. This suggests that banks may need to reassess their liquidity management strategies to ensure they can effectively navigate periods of stress.

2. Operational Readiness: The article highlights the importance of maintaining and updating payment infrastructure and discount window operations. This underscores the need for banks to invest in their operational capabilities to ensure they can access necessary funding and maintain operations during stress periods.

3. Regulatory Reform: The article discusses potential regulatory reforms, particularly in capital requirements and liquidity regulations. It cautions against a piecemeal approach to reform and emphasizes the need to consider the broader impact of regulatory changes. This suggests that banks should prepare for potential regulatory changes and consider how they might impact their operations and strategies.

4. Supervisory Focus: The article calls for a renewed focus on core financial risks in bank supervision, including concentration risk, interest rate risk, and liquidity risk. This indicates that banks may face increased scrutiny in these areas during examinations.

5. Discount Window Operations: The article discusses potential improvements to the Federal Reserve's discount window operations, including expanded hours and modernized technology. This could have significant implications for how banks approach emergency liquidity access.

The underlying significance of these points is that the banking regulatory landscape is likely to evolve in response to recent banking stresses. Banks will need to be proactive in adapting their risk management practices, operational capabilities, and strategic planning to navigate these changes effectively. The potential implications include increased operational costs to improve readiness, potential changes to liquidity management strategies, and the need for more robust risk management practices focused on core financial risks.

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Thank you for reading,

Naeem

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