Whitepaper
Geopolitical risks
By Dr. Til Bünder, Gerold Grasshoff, Emilia Zimermann
The economic structure around the globe is becoming increasingly complex and trade conflicts and military tensions are posing various risks for national economies, companies and financial institutions. In such a situation of uncertainty, proactive risk management is more important than ever for banks. The current FIRM position paper Banks Navigating Global Crises: Analysis of Geopolitical Risks and their Impact on the Financial Sector summarizes what needs to be considered, how scenarios are defined, quantified and appropriate mitigation measures derived.
The authors Gerold Grasshoff, Dr. Til Bünder and Emilia Zimermann look at the potential impact of recent developments in China, the Middle East and the political change of course in the USA. The analysis focuses on German and European banks: how do geopolitical risks affect their credit, market, liquidity, business, sanctions and cyber risks? The position paper offers comprehensive guidelines for dealing with geopolitical challenges in the financial sector.
Artificial intelligence
By Dr. Jochen Papenbrock, Dr. Sebastian Fritz-Morgenthal, Philipp Adamidis
In the position paper “Challenges and opportunities for model risk management”, the authors Sebastian Fritz-Morgenthal, Philipp Adamidis and Jochen Papenbrock describe why the use of artificial intelligence (AI) in banks promises a variety of benefits – from increasing efficiency to improving decision-making. At the same time, the increased use of AI models brings with it new challenges, particularly in the area of model risk management.
Strategies pursued to date require a fundamental overhaul. The position paper examines the regulatory requirements and rules of the European Banking Authority (EBA), the European Central Bank (ECB), the German Federal Financial Supervisory Authority (BaFin) and the EU AI Act. It also shows how the expanded use of AI affects model risk and the challenges and, in particular, opportunities this presents for banks’ model risk management.
ESG – Climate risks
By Dr. Til Bünder, Nicholas Martin
How the climate and energy policies of the EU and the USA affect the economy
The current position paper of the FIRM Round Table ESG examines the climate policy measures of the European Union (EU) and the United States (US) in terms of their impact on economic performance.
The authors Dr. Til Bünder and Nicholas Martin explain how the significantly more ambitious regulations in the EU will affect various economic levels, where opportunities will arise and what risks need to be considered. A comparison of the EU and US climate and energy policies shows that the US is becoming more attractive due to its direct and simple approach to promoting green investments. The EU, on the other hand, is jeopardizing its leading position in the field of green innovation and investment due to its more complex regulation and the fragmentation of financing mechanisms. It is therefore crucial that the EU continues to develop its political framework conditions in such a way that climate targets are achieved and its economic competitiveness is secured at the same time.
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)
Professional Articles
The big picture: Controlling the NFR Puzzle
By Sonia Dribek-Pfleger, Dr. Lorenz Schendel
While the individual frameworks of Non-Financial-Risks (NFR) are becoming more detailed and comprehensive with increasing regulatory requirements (e.g. DORA), current challenges (pandemic, cyber, AI, geopolitical crises) and increasing team size and decentralisation of risk management activities, the overall view of non-financial risks is increasingly suffering. In this article, we present both pragmatic approaches for initial steps and a long-term target picture for the holistic management of non-financial risks, with the aim of creating consistency between the various NFR data, making the NFR risk profile transparent and achieving efficient risk management by focusing on the material risks.
Regulatory Ambiguity and Credit Risk Requirements for Implementing EU Final Basel III Rules
By Joo-Yung Lee, Jan Schimmel
Last year we discussed the changes to the standardised approach (SA) for calculating risk-weighted assets (RWAs) for credit risk and its implementation challenges. All banks, including banks using the Internal Ratings Based (IRB) Approach will have to calculate the SA either as their main capital calculation or, in the case of ‘IRB banks’, in order to apply the output floor. The rules are now final in the EU with a go live date of 1 January 2025 with full implementation by end-2032 following a phase-in period. Several regulatory interpretation questions have emerged as banks are implementing these changes, some of them driven by larger banks who are focusing on the standardized approach more than they have in the past.
Consistency of interest rate risk management and IFRS hedge accounting through the future DRM model?
By Volker Liermann, Oliver Wulle
The DRM model as the future IFRS portfolio hedge accounting model is intended to resolve the long-standing tension between interest rate risk management at portfolio level and its presentation in the IFRS financial statements and overcome the weaknesses of the still relevant IAS 39 Portfolio Fair Value Hedge. Some risk managers in particular are demanding for the risk management view to be fully incorporated into the IFRS financial statements. The question therefore arises as to the extent to which a complete risk management view is possible or sensible in IFRS financial statements and how the risk management view can be adapted as far as possible in the DRM model.
Quantifying natural risk – challenging, but possible
By Markus Quick, KPMG AG WPG Frankfurt, Dr. Holger Spielberg, Armina Schädle, Tania Jötten
Five years ago, banks were faced with the challenge of measuring climate risks and integrating them into their risk management. Now, biodiversity loss is gaining attention and is joining climate risks on the political and regulatory agenda. Experience from the climate sector provides a valuable basis for all risk management processes. However, biodiversity risks are significantly more complex and extensive, which leads to challenges right from the definition and identification stage. Many institutions have started to assess their portfolios via established data providers such as Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE).
ICT risk management under DORA – integration into ICAAP and ILAAP
By Prof. Dr. Andreas Igl
The introduction of the Digital Operational Resilience Act (DORA) from January 17, 2025 takes the importance of robust ICT risk management to a new level. As part of operational risk, ICT risks are becoming particularly relevant, as their impact not only directly influences operational stability, but also the capital and liquidity planning of banks. Operational risks, including ICT risks, must therefore be systematically identified, assessed and managed as part of the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP). The article highlights approaches for approximating and quantifying ICT risks.
Yearbooks
Yearbook 2025
Risk management is a reflection of the issues that affect our society. Because wherever new developments emerge, risks arise. Nowhere is this more evident than in the geopolitical developments that are currently keeping us on tenterhooks. Two years ago, this was still a topic for thought leaders. Today, it is the dominant risk with a direct impact on the economy and society.
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.
