Risk Headlines

Traders Reeling As Hopes of Interest Rate Cut Sink- US Economy Added More Jobs - source yahoo.com

Key Points:

The latest jobs report could likely put a dent in the plans for rate cuts. Traders that expected a July rate cut will likely have to wait longer, possibly moving rate cuts to later in the year. The predications of six rate cuts this year has not materialized which has yet to slow the markets. Banks must remain vigilant and adaptable in the face of global economic and political uncertainties to ensure long-term stability and growth.

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TD Bank Could Face Fine Up To $4 Billion- Failures In AML & Money Laundering - source pymnts.com

Key Points:

The multifaceted risk breakdowns and challenges faced by TD Bank in light of the money laundering scandal should bring a lot of concerns to Senior Management and Risk professionals who manage or oversee these complex operations daily. The potential financial, legal, and reputational consequences are severe and require immediate action from the bank.

A.I. Risk / Technology Risk

Banks Say Growing Reliance on Big Tech for AI Is One of The Biggest Risks - source reuters.com

Key Points:

The significant risks and challenges banks face in adopting AI, 

• Dependence on Big Tech: The computing power required for AI development may force banks to rely heavily on a small number of tech providers, leading to concentration risk and potential disruption if issues arise with these providers.

• Regulatory challenges: Proposed rules to regulate financial firms' reliance on external technology companies could impact how banks leverage AI and cloud computing, potentially affecting their competitiveness and innovation.

• Customer protection: Banks have a legal obligation to protect customers when using AI, which could require significant investments in risk management and governance frameworks.

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SEC Cyber Disclosures Delayed Several Times Since December - source wsj.com

Key Points:

The SEC's new rules aim to provide investors with more timely and comprehensive information about cybersecurity incidents and risk management practices. However, the Justice Department's involvement in granting exemptions highlights the potential national security implications of certain cyber incidents.  The growing importance of cybersecurity in the regulatory landscape and the complex challenges faced by companies in managing cyber risks will take greater focus during these events.

Regulatory News - Fines, Losses, & Rules

CFTC Recommendations on Basel III Endgame and Variation Margin Processes - source cftc.org

Key Points:

Two significant developments impacting banks and derivatives markets. First, proposed changes to U.S. implementation of the Basel III bank capital framework represent a major overhaul that could constrain banks' capacity to provide derivatives market access to clients, reduce liquidity, increase user costs, and potentially exacerbate systemic risk. This has clear strategic and risk management implications for banks.

Second, the exponential growth in margin call volumes for non-centrally cleared derivatives since implementing margin requirements is stressing operational processes and liquidity management. Regulators like the BCBS and IOSCO have recommended enhancements to streamline variation margin flows.

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Federal Reserve Board Coming Results Form Its Annual Bank Stress Test - source federalreserve.gov

Key Points:

The Federal Reserve Board a results from its annual bank stress tests will be released on Wednesday, June 26, at 4:30 p.m. EDT. Additionally, aggregate results from the Board's first exploratory analysis, which will not affect bank capital requirements, will be released simultaneously.

This year, 32 banks with $100 billion or more in total assets are subject to the Board's stress tests. The scenario includes a severe global recession with heightened stress in commercial and residential real estate markets. Separately, the exploratory analysis includes four separate hypothetical elements, including two funding stresses applied to all banks tested and two market shocks applied to only the largest and most complex banks.

Risk Data to Geek Out On

The Impact of Generative AI on Risk Careers - source garp.org

Key Points:

Generative AI is catalyzing a major transformation of risk management, exposing readiness shortfalls while also compelling a strategic shift in risk practices and roles. The low preparedness despite high awareness of AI risks points to an urgent need for financial institutions to upskill risk teams and implement comprehensive management frameworks. Simultaneously, the evolution of risk management from siloed and reactive to embedded and proactive will be essential for institutions to effectively govern AI risks across a variety of bank businesses.

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Thank you for reading,

Naeem

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