Insights

In these crazy days, it can sometimes seem like one-in-a-hundred-year events are happening every five years (of course, as long as the events are all different, there’s not necessarily a contradiction here!). These crises – complete with catastrophic consequences (think the Global Financial Crisis of 2008, or the current pandemic) – are rare events; few expected…

Imagine running-up to take a penalty, only for the goalposts to move just as you’re about to kick the ball. What if the ball was the capital you’re managing and the goalposts the risk you’re prepared to take? That sums up what risk managers have had to contend with during COVID. Yet most organizations adjust…

Equities, bonds and cash. This is the holy trinity of assets where investment managers stash most of their money. They may have a bit of all three; they may invest exclusively in stocks, and then only in “safe” sectors. How they divvy up their allocations will, of course, depend on the amount of risk they’re…

They sent chills down the spines of every big bank CEO, forcing some of the most storied names on Wall Street to try multiple times before receiving a pass. Since then, the Federal Reserve’s annual stress tests – aka the Comprehensive Capital Analysis and Review (CCAR) – have become something of a box-ticking exercise. No…

The past six months have been full of surprises, ranging from the coronavirus pandemic and lockdown, to massive government intervention and soaring stocks. Against this backdrop, one is almost tempted to feel sorry for risk professionals. After all, it’s their job to make sure senior management is ready for anything – even surprising and unprecedented events.…

Have the markets gone mad? After the COVID crash – prompted by the “Great Shutdown” rather than than the pandemic itself – markets have recovered their vim. As Bloomberg’s Sarah Ponczek tweeted: “The fastest plunge ever turned into the quickest 50-day advance in nine decades.”  It doesn’t seem to matter how bad the bad news is.…

Stale, confusing and little more than a compliance exercise designed to enable banks to continue paying dividends – that’s how Harvard professor and former Federal Reserve board member, Daniel K Tarullo, described last week’s bank stress tests. The Fed, he writes, must do better, and overhaul the entire process: Given the admitted roughness of the sensitivity analysis, doesn’t…

Totally outdated. That’s how the U.S. Federal Reserve must now feel about February’s bank stress tests – within weeks, the COVID-19 pandemic had rendered them useless. Of course, the Fed isn’t expected to predict the future. At the time, it asked banks to run two scenarios on their balance sheets: “baseline” and “severely adverse” (it…

The precise timing and severity of a pandemic is impossible to predict: there is no Minority Report-style “pre-pandemic”, where genetically-blessed soothsayers see the future. But as we discussed in previous posts, it is possible both to prepare for an outbreak, and to understand which scenarios will have the biggest impact on your organization. But what about the government response? Again,…

Last week, we discussed how our algorithms factor in new, unprecedented scenarios, such as COVID-19. But which particular variables have the biggest impact on the overall risk scenario? This was a question put to us by another one of our clients.  There is no “super variable”. Of course, not all variables are created equal. But the key…

Last month we wrote about the massive upheaval caused by the coronavirus pandemic, and how financial institutions must quickly find an effective way to measure unprecedented tail risks.  The piece sparked a number of questions, which I’ll attempt to answer here. One client asked: Could you describe in detail how Straterix adjusted to the situation coronavirus created?…

Read our CEO’s article – COVID-19 Calls for New Risk Measures, which was published on April 3, 2020 in the GARP magazine