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Senators Debate on Bank Capital Needs & Can AI Get Risk Management Right

PLUS: Toxic Culture At the FDIC, WSJ Exposes Risk

Author

Naeem Qasim
November 17, 2023

Hello folks, thanks to everyone who recently joined us!

Welcome back to the Risk Queue, the queue is filled with regulatory fines, AI, debate of capital hikes for banks, and year end reporting on 2023 fines.

Lets jump in,

Naeem Q

CEO and Founder, Risk On Q

Risk Headlines

Senators Challenge Bank Regulators On Capital Hike Efforts - Source Yahoo.com

Key Points:

  • Capital requirements proposed in Basel 3 endgame rule would increase capital for large banks. Most increases result from higher capital for trading/derivatives, not from lending activities. Requirements appear calibrated for trading/investment banks, not commercial lending models. Banks should provide data-driven analyses of capital needs based on their banks' specific risk profiles to assist Regulators in determining the need for capital hikes.  

You can read the full story at Yahoo.com here. 

The Operational Risk Firm’s Face With Managing Complex Regulation - Source TradersMagizines.com

Great insight from Jody Jonsson, Vice Chair of Capital Group, she is urging regulators to understand the practical implications of their proposals. She emphasized the complexity of operational details in implementing regulations and warned about the potential for increased operational risk. 

A. I. Risk / Technology Risk

We should welcome the recent agreement by companies like Meta, Google DeepMind, and OpenAI to provide regulators access to test their latest AI products before public release. This will lower the risk consumers and the broader financial system can be impacted by.

Fines, Losses, & Rules

The Board and Senior Management own responsibility for the culture. HR policies are in place to prevent these types of events but leadership at all levels of the organization need to commit to enforcement and hold individuals accountable.

Regulators have issued formal orders, such as MRAs (Matter Requiring Attention) or MRIAs (Matter Requiring Immediate Attention) to improve detecting criminals using it accounts or products. A lawsuit alleges that Wells Fargo allowed a $490 million Ponzi scheme to operate, raising concerns about the bank's monitoring systems.

Millions of Customer data were compromised during two different incidents. Morgan Stanley has stated that it has notified all potentially impacted clients, made significant changes to data destruction and vendor handling processes.

Last week we shared the CFTC reported penalties in 2023 exceeded $4.3 billion and this week the SEC has released its enforcement results for 2023, 784 total enforcement actions in fiscal year 2023 nearly collecting $5 Billion in penalties. a record number of digital asset cases (47), actions holding registrants accountable, manipulation and spoofing cases, and litigation victories.

Risk Data to Geek Out On

The U.S. Financial Regulators: A Look at Federal Deposit Insurance Corporation (FIDC): - Source Google.com

We continue to take a look the US financial regulatory bodies and their key responsibilities, regulations, and some of the the larger fines they have imposed, this week we are taking a dive into the FDIC and some of the key stats for your knowledge.

Here’s the FDIC’s key responsibilities, regulations, and some of the larger fines imposed, key stats:

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Thanks for reading.

Until next time!

Naeem

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