Risk Headlines

Fed Leaves Rates Unchanged -source reuters.com

Key Points:

The Fed held rates steady in the 5.25%-5.50% range. This is significant for banks as it affects their lending and borrowing rates, impacting profitability. The Federal Reserve's latest policy decision reflects a cautious optimism about the economy and inflation trends. The coming months will be crucial in determining whether the Fed's cautious pivot towards easing will successfully balance its dual mandate of price stability and maximum employment.

_________________________________

Banking Giants Sound The Alarm: $4 Billion in Losses as Consumer Debt Soars  -source dailyhodl.com

Key Points:

A concerning trend of increasing credit losses among major US banks, with Bank of America, Citigroup, and Goldman Sachs reporting a combined $4.139 billion in losses. This surge in uncollectible debts suggests a deterioration in the financial health of consumers and potentially businesses.  The increase in provisions for credit losses, as seen in Bank of America's report, indicates that banks are preparing for a potentially challenging economic environment. This cautious approach may lead to tighter lending standards, which could further impact economic growth.

The Federal Reserve Bank of New York's report on rising household debt levels adds another layer of concern. The $17.69 trillion figure represents a significant increase and could pose systemic risks to the financial system if economic conditions worsen. These developments may necessitate a reevaluation of risk management strategies, lending policies, and perhaps even broader economic policies to address the growing disparities and potential systemic risks.

A.I. Risk / Technology Risk

AI Buzz in Banking & Risk Management - source risklibrary.net

Key Points:

Generative AI (GenAI) is rapidly transforming risk management in banking, with potential applications ranging from digital assistants to legacy code revitalization. While promising significant efficiency gains and cost reductions, GenAI implementation requires careful consideration of regulatory compliance and risk management.

_________________________________

The Crowdstrike Outage Showed That Risk Management Is Essential ! - source theconversation.com

Key Points:

The CrowdStrike outage serves as a stark reminder of the potential for widespread disruption due to failures in seemingly isolated systems. In today's hyperconnected business environment, effective risk management is crucial to navigate the complexities of operational risks and potential system-wide failures. Organizations need to consider and prepare for low-probability, high-impact events.

Regulatory News - Fines, Losses, & Rules

CITI Has Another Regulatory Breach - source reuters.com

Key Points:

Citigroup's ongoing struggle with regulatory compliance and risk management across multiple fronts highlights systemic weaknesses in its internal controls and reporting processes, leading to increased scrutiny by the Regulators.  Repeated Regulation W violations indicate systemic control issues, and liquidity reporting inaccuracies raise concerns about financial stability. These risk issues are pilling up for Citi, and the Regulators could look for leadership changes, as experienced by other financial institutions.

_________________________________

Big Banks Colluded on Swaps Trading & Pay $46 Million - source yahoo.com

Key Points:

The allegations of collusion in swap trading highlight concerns about anti-competitive practices in over-the-counter markets. Although the denial of class-action status weakened the case, the fact that a settlement was still reached suggests that banks saw value in resolving the issue, possibly to avoid further scrutiny or reputational damage. The push for electronic trading platforms mentioned in the case reflects a broader trend in the financial industry towards more transparent and accessible markets. The involvement of multiple major banks indicates that these issues are industry-wide rather than isolated incidents, which could lead to broader regulatory responses or market structure changes in the future.

_________________________________

SEC Launches Council Across Federal, State, and Local Agencies to Coordinate Enforcement - source sec.gov

Key Points:

A welcome shift for financial firms is coming, a more coordinated and collaborative approach in combating securities fraud and protecting investors. The creation of the Interagency Securities Council represents a concerted effort to pool resources, share intelligence, and streamline enforcement actions across federal, state, and local levels. This initiative aims to create a more robust and responsive system to address the increasingly complex landscape of financial fraud.

Risk Data to Geek Out On

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

Key Points:

The Office of the Comptroller of the Currency (OCC) produces a quarterly report that offers valuable insights into the derivative activities of U.S. commercial banks and trust companies. This report is based on: reports of condition and Income (call reports) filed by all insured U.S. commercial banks and trust companies and other published financial data.

This OCC report serves as a crucial tool for understanding the landscape of derivative activities in the U.S. banking sector, offering both industry-wide insights, potential benchmarks for individual institutions, and regulatory expectations.

1. Trading revenue increased 34.2% quarter-over-quarter to $15.6 billion, indicating improved market conditions and trading performance. This is significant for profitability and competitiveness.

2. Net current credit exposure (NCCE) increased 4.6% to $251 billion, suggesting higher counterparty credit risk. This is crucial for risk management and capital adequacy.

3. Derivative notional amounts increased 7.1% to $206.1 trillion, with interest rate products dominating at 70.1%. This shows continued growth in derivatives activity and exposure to interest rate risks.

4. Four large banks represent 87.6% of total banking industry notional amounts and 64.5% of industry NCCE, highlighting concentration risk and potential systemic importance.

5. Centrally cleared derivative transactions increased to 35.9% of banks' derivative holdings, indicating progress in risk mitigation through central clearing.

6. Level 3 trading assets increased 5.7% quarter-over-quarter but decreased 16.9% year-over-year, suggesting some increase in hard-to-value assets but an overall improvement in asset quality.

These results suggest a need for banks to balance growth opportunities with prudent risk management and for regulators to closely monitor systemic risks.

_________________________________

Thank you for reading,

Naeem

p.s. If you find the Risk Queue newsletter helpful please subscribe and share it with a friend or colleagues, you can find it here!