Newsletter
FIRM | Issue 2 | 2024
Last week was the general meeting of FIRM. A club meeting can be a pretty boring affair. Finally, all formalities and resolutions stipulated in the Articles of Association must be completed.
But we thought: let’s make it as tight as possible. After all, everything runs smoothly at FIRM. We only took time for one highlight, the election of the new members of the FIRM Board. We are delighted to have Stefanie Buchmann, Andreas C. Heise and Marco Kreuter as three committed members of our team.
We used the resulting free space for exciting content: FIRM CEO Gerold Grasshoff analyzed how geopolitical risks affect the banking industry. Jens Wilhelm from PeakBlau took a deep dive into the complex risks currently lurking in the real estate market. The advisory board meeting dealt with the question of how personal communication works in receivables management. Prof. Christine Laudenbach from the SAFE Institute and Dr. Marcus Siegl from Intrum were guests at the event. We have summarized all the presentations for you in this newsletter.
Plus reports from our round tables on artificial intelligence, cyber risks and ESG, the outlook for the Research Award 2024 and a podcast recommendation on the energy transition with Dr. Stefan Peiß.
FIRM | Issue 1 | 2024
Where will the journey take us in 2024? Uncertain. But what we do know: The path is lined with risks. From well-known issues such as the renewed increase in credit risk. And of completely new ones. These include, above all, geopolitical risks, which will top the rankings for supervisors, banks and investors in 2024. This is reflected in FIRM’s risk map and also shapes the discussions in the Executive Board, in the round tables and at our events.
In addition to profitability and growth, risk management is becoming the third pillar of success for companies, as Gerold Grasshoff also says in the interviews he conducted at the beginning of the year. The high level of methodological expertise that has been built up in risk management over the past few years helps here. However, it is crucial to focus on the greatest risks.
These are geopolitics, cyber risks, reputational risks and ESG risks. In this newsletter, you can find out how this focus translates into the work of FIRM and what the focus of the Round Tables 2024 will be. You can also read the reports on the FIRM Advisory Board meeting with the guest lecture by Prof. Katharina Hombach. There are updates on the ongoing research projects of Prof. Christine Laudenbach and Prof. Peter Gomber as well as a specialist article on the topic of climate stress.
FIRM | Issue 8 | 2023
What topics will shape risk management in 2024? FIRM CEO Gerold Grasshoff addresses this question in the latest newsletter. In addition, a review by the Advisory Board Chairwoman, an overview of the FIRM Round Tables and a specialist article on the topic of “Financial sustainability”.
FIRM | Issue 7 | 2023
FIRM at the Green Finance Forum 2023 – reports on the panel and deep dive, the most important news from the FIRM board meeting, introduction of the new advisory board members, a specialist article on the “G” in ESGRC and the outlook for the 2024 dates.
FIRM | Issue 6 | 2023
A report on the FIRM-Herbstkonferenz 2023 with photo spread, the FIRM Yearbook Award ceremony, the latest technical article on “Risk Workshops” and an outlook on the Green Finance Forum 2023.
Whitepaper
Asset Management
Navigating the Future: DLT and Digital Assets
in the Evolving Realm of Asset Management
Emerging technologies such as digital ledger technology (DLT) are revolutionizing numerous industries, including the asset management sector. This white paper analyzes the latest advances in the application of these technologies in asset management and provides an outlook on the digital transformation in the coming years.
The wealth management industry is increasingly using digital assets and DLT to diversify its offering and improve operational efficiency. Institutional interest in digital assets in particular is on the rise, putting them in the spotlight for various investment strategies. The commitment of industry giants such as Goldman Sachs and BlackRock underlines the importance of this trend.
This white paper examines the integration of DLT into asset management, describing the benefits as well as the potential risks. Recommendations for a successful introduction are also given. It shows how DLT can rationalize processes, reduce costs and create transparency within asset management processes, in research, trade processing and risk management.
The paper addresses key areas such as tokenization, trade settlement, risk management and the possibilities of decentralized finance (DeFi). A case study by Bankhaus Metzler on the issue and trading of native crypto fund shares under German law will also be shown. The authors provide an outlook on the impact of the integration of DLT and digital assets on the asset management industry.
Authors: Dr. Christoph Wronka, Jens Hermann Paulsen, Lars Ulbricht (all Deloitte) as well as Hendrik König and Shahrok Shedari (both Bankhaus Metzler)
Payments
Risk management and operational
resilience in payment transactions
The importance of electronic payments has increased rapidly in recent years. The reasons for this are technological innovations, advancing digitalization and modernization of the market infrastructure. For banks, the processing of account and card payment transactions therefore represents a core value chain and an important business segment.
The position paper highlights the challenges that banks currently face in payment traffic. To this end, the Round Table conducted a survey among FIRM member institutions, surveyed the status quo, and developed important internal and external recommendations for action.
Authors: Dr. Markus Ampenberger (BCG), Prof. Dr. Tobias Berg (Goethe University), Daniel Regending (Deutsche Bank)
Macroeconomics
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)
Asset Management
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)
Risk culture
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.
Professional Articles
Financial sustainability, ESG and value investing
The current specialist article deals with the study “Financial sustainability, ESG and value investing”. It examines how the consideration of financial sustainability in stock selection affects the performance of common investment strategies such as ESG and value investing.
Authors: FIRM editorial team
Sustainable corporate orientation in the context of risk governance
The concept of success, which used to be one-dimensional and focused only on economic performance, has changed to a three-dimensional concept of success that also reflects ecological and social success (triple bottom line).
Authors: Prof. Dr. Arnd Wiedemann and Yanik Bröhl
The Difference-of-Differences Approach: An Application Example in Risk Management
This article highlights the difference-in-differences approach as one way in which econometric techniques can be used to estimate the credit risk of financial institutions.
Authors: Dr. Guido Golla and Dr. Alexander Mosthaf
Disruption in the banking industry: advisors and customers benefit from AI
Recent leaps in development in the field of artificial intelligence will fundamentally change banks. Industry experts see high disruptive potential in applications like ChatGPT. The institutions are well positioned for a more aggressive digitization of their business models.
Authors: Michael Heck and Dr. Stefan Hirschmann
TCFD 2022 Status Report
Is there sustained progress in climate-related reporting? This question is addressed in the current technical paper and refers to the TCFD Status Report 2022. The task force signals a positive development for the last years.
Authors: Prof. Dr. Johannes Beermann, Dr. Torben Menk
Yearbooks
Yearbook 2024
In the FIRM Yearbook 2024, we address the current focal points in risk management. More than 50 authors have contributed to the yearbook. They write about cyber risks, cryptocurrencies, artificial intelligence and machine learning, reputation, ESG and governance as well as many other financial and non-financial risk topics. We also report on the work of our Risk Round Tables and present the most recently published position papers.
Yearbook 2023
In the FIRM Yearbook 2023, we show how the dialog between business and science succeeds in practice. With contributions from 50 authors on ESG, payments, cyber risk, artificial intelligence and much more. In addition, reports and position papers from our FIRM Risk Round Tables.
Yearbook 2022
In the FIRM Yearbook 2022, more than 50 authors from business and academia explain in their contributions and studies on ESG risks and taxonomy, cyber risks, consequences of the Corona pandemic, nonfinancial risks, and payments and artificial intelligence in banks, which developments are currently shaping risk management.
Yearbook 2021
