• Risk Queue
  • Posts
  • Fed Calls Timeout on Interest Rate Hikes / AI is Now A Top Risk

Fed Calls Timeout on Interest Rate Hikes / AI is Now A Top Risk

Also: Regulators Clamp Down on Bank's Risk Management & OCC's 2023 Annual Report

Author

Naeem Qasim
December 14, 2023

Hi folks the Risk Queue is full this week!

Banks receive the gift, no rate hikes by the Fed but the Regulators are not wasting any time to keep the risk management pressure through a variety of tools.

Plus AI risk is not waiting on risk management professionals, the train has left the station. The good news that we have and will continue to cover the AI and risk management integration for you.

Lets get to it,

Naeem Qasim

CEO & Founder, Risk On Q

P.S. We wish everyone a happy holiday season and we will be back in the New Year for an exciting 2024! Thanks again for all your feedback and support…

Risk Headlines

Federal Reserver Holds Interest Rates Steady - source cnbc.com

Key Points:

  • The Fed sees inflation and the economy moderating enough to pause rate hikes for now after aggressive tightening. However inflation remains elevated above Fed’s 2% target, the job market is tightening as a recent wave of layoffs seen across industries, and the banks lending activities are slowing. The next several quarters of economic data will be key to provide Fed clarity on the direction of rates in 2024. 

  • Firms agility in balance sheet planning and close tracking of inflation/growth signals is warranted. Banks need to enhance stress testing across rate and economic scenarios, strategize for liquidity and deposit flows under the divergent Fed/market rate paths, and evaluate risk appetite for lending in their respective markets. Risk remains of an economic downturn that could lead to higher credit losses and thinner loan demand.

You can read the article at CNBC

A.I. Risk / Technology Risk

Key Points:

  • The widespread AI usage across businesses will make it difficult to get full visibility into new risks, exposing firms. Proactive risk management is essential. Without proper governance, poor accountability around AI issues could pose severe legal, ethical and reputational consequences.

  • Firm’s AI risk visibility will need to take top priority, establishing robust governance, internal controls, and usage policies is also mission-critical to promote responsible AI across a firm. Careful oversight and risk-aware adoption is vital in this fast-moving domain.

    ____________________________________________________________

Companies get ready to report cyberattacks to the SEC within 4 business days if the incident will have a material financial or operational impact.

____________________________________________________________

Nasdaq decided to shut down the FIX/RASH order handling system for three plus hours, block all new orders, and cancel any open orders back to customers.

Fines, Losses, & Rules

A 2022 New Jersey court order relating to mortgage securities fraud triggered a disqualification barring Credit Suisse from serving mutual funds. Despite the disqualification, Credit Suisse entities failed to properly monitor for disqualifying events and seek SEC waivers before providing the mutual fund services.

____________________________________________________________

An organization's culture is a vital factor in the quality of its risk management practices and regulators are closely monitoring that of firms. Although this may seem a reversal of roles, the FIDIC will have an independent review performed on its workplace culture, misconduct, harassment, handling of complaints and a toxic work environment. There is likely more questions than answers after the review concludes in February 2024.

Emerging Risk

Regulators are taking a noticeably tougher stance on oversight, pressing banks across asset sizes to address perceived deficiencies in financial resiliency areas like liquidity and interest rate risk.

Risk Data to Geek Out On

OCC 2023 Annual Report - source occ.gov

The OCC Annual Report provides Congress with an overview of the condition of the federal banking system. The annual report discusses the OCC's strategic priorities and details agency regulatory and policy initiatives.

The OCC investigates, litigates, and takes enforcement actions to address unsafe or unsound banking practices and failures in compliance, including compliance with certain consumer protection laws.We have also included the below chart to show total fines by the agency in 2023.

All OCC-Supervises Institutions & Eforcement Actions in 2023