News & Papers for download

Bracing for Impact: Analysis of the
Current
State of the Banking Industry

Uncertainty remains high following the recent bank failures of Silicon Valley Bank, Signature Bank and Credit Suisse. Is there a danger of a renewed crisis? The risk should not be underestimated, write the authors of the current FIRM position paper. According to their assessment, however, the banks are better prepared than in the financial crisis of 2007/2008.

FIRM CEO Gerold Grasshoff, together with co-author Dr. Til Bünder (BCG), has spent the last few months intensively studying the developments on the
Banking market busy. “You have to go way back to understand the context in which current developments are taking place,” Grasshoff explains. The banking sector has been fed with cheap money over the past 15 years, through low interest rates over a very long period and through quantitative easing.

Authors: Gerold Grasshoff (FIRM) and Dr. Til Bünder (BCG)

Cryptoassets

Crypto assets have had a difficult year. After hitting record highs in November 2021 and a market capitalization of $3 trillion, the end of quantitative easing also marked the end of the highs in the crypto market. The collapse of the crypto exchange FTX provided another low point. Many of the events in recent months are reminiscent of the dotcom bubble at the beginning of the millennium. This makes it all the more important to take a close look at the opportunities and risks of this asset class.

In past meetings, the Asset Management Round Table has taken a closer look at the various facets of the crypto market. The discussion panels showed that both asset management practitioners and experts from business and academia continue to see huge potential in blockchain technology. However, it is expected that the crypto world will undergo drastic changes
– both at the regulatory and monetary level.

Authors: Christoph Wronka, Jens Paulsen and Nils-Philipp Böhm (all Deloitte)

Perspectives on the supervisory focus and the lived practice in the institutes

A robust risk culture is a success factor as part of corporate culture and good corporate governance – many banks recognized this early on. At the latest with the regulators’ preoccupation with this topic and the consequent
inclusion of explicit requirements in the CRR and other regulatory documents, the topic has become widespread in the industry.

Leadership culture (“tone from the top”), responsibilities, effective communication and critical dialogue, and incentives: these core building blocks of risk culture are now established as a theoretical construct. The “Risk Culture” working group of the Frankfurt Institute for Risk Management and Regulation (FIRM) has derived ten theses from this.

Frameworks for Non-Financial Risks: Status Quo and Priorities for Action in the Banking Sector

Proactive monitoring of financial risk positions, including quantitative management of risk provisioning, is a central component of the regulatory capital adequacy requirement and is therefore standard in banking. The development of the credit risk of a loan portfolio, for example, is monitored along quantitative target corridors and forecast on an ongoing basis. Where necessary, forward-looking risk provisioning measures are initiated to keep the Bank’s anticipated risk exposure within the target corridor.

Conceivable risk provisioning measures may include the acquisition of credit derivatives, the sale of non-performing loans, or even the reduction of new lending business, for example for certain customer segments.