Welcome to RiskbOWl – the first closed community of Risk professionals to share ideas and best practices

Through RiskbOWl, you will be able to anonymously ask questions, share perspectives, run targeted polls, discuss recent regulatory developments and so much more.

We are already live with the pilot, and can’t wait for you to contribute as well. But before you do, two things:

1. Security
The only way this community will work is if we keep the environment highly secure and therefore we have integrated the login with our Oliver Wyman Single-Sign-On infrastructure that we use for all client work where the information being shared is sensitive.

By now you should have received an e-mail from our IT services on how to set up your User ID on the OW Digital workbench. These are your RiskbOWl User ID and password.

For any questions regarding your account set up please e-mail: riskbowl@oliverwyman.com

2. Community rules
Remember to maintain anonymity at all times and :

i. Limit your discussion to details of methodologies (e.g. formulae or equivalent), including the relative merits of different methodologies for capital adequacy best practice.

ii. Never disclose or otherwise discuss actual input or output values used by them in respect of any methodologies.

iii. Never engage in discussion of information that relates to your institution or other’s commercial positioning or strategy.

iv. Adhere strictly to the letter and spirit of competition and antitrust laws - RiskbOWl is a space for knowledge exchange, not collusion.

We will be pre-screening all messages to start with, but depend on our community to be the first line of defense

And lastly, remember this is a pilot: we are still fixing some bits and bobs, so bear with us with any hiccups while we make RiskbOWl the best it can be!

Thank you for being part of this community. We think and hope it will transform how we share knowledge in the risk world in a timely fashion.

The RiskbOWl team

Conversations with our clients reveal the imperative of realizing the benefits from the promise of digitally transforming credit decisioning and lending journeys, driven by the need to control bank costs and retain customer loyalty in the face of competition from more nimble, digitally-native banks

To better understand current trajectories in the lending transformation space, Oliver Wyman conducted a survey of banks across several markets, looking at the overarching burning platform, budgets, barriers to transformation, data, analytics, underlying technology, customer management, and organisational setup. In summary, our high-level, selected findings indicate

Lending transformation is a high priority topic, with participants sequencing Retail and SME first in their lending transformation programs Respondents see the traditional incumbent breakthrough as the biggest competitive threat over the new fintech challenger looming on the horizon Decisioning time, revenue growth and cost reduction cited as top 3 benefits, whilst expected uplift is highest for customer experience Budget for lending allocation is approached on program level or on individual level, with very few respondents approaching it as a strategic objective Most budget is spent on customer journeys, internal workflows and underlying IT infrastructure rather than analytics capabilities

Lending transformation survey infographic.png

Reach out for more insight, but we’d be keen to hear from the RiskbOWl community how this stacks up against your lending transformation program – post your thoughts below !

As far as understatements go, to say that the in-tray of Chief Risk Officers and risk leaders is quite full would, quite rightly, be seen as big one, having had to contend with the impacts of several, once-in-a generation events, all at once and within the first half of a single decade. Little wonder that terms such as “polycrisis” have been coined that neatly sum up recent years, and the persisting uncertainty is, arguably, leading to take up of another pithy, catch-all term “permacrisis”

What’s clear from our conversations with our client CROs and upcoming, future risk leaders via our CRO Incubator program, is that we’re seeing concerns abound from the tumult in the overarching operating environment from seismic shifts in geopolitics, the shifting nature of cyber risk and of the need to strengthen operational resilience, the need to effectively comply with existing and new upcoming regulation, as well as worries on the capabilities needed to evolve the risk function future in a way that delivers on the promise of technology, without fundamentally disrupting the function itself

Our CRO Agenda therefore reflects these concerns, the business problems faced by our clients on our project work, and the overarching drivers of the CRO agenda, namely the uncertain outlook, breeding volatility and fragmentation in policy making and regulation

Our extensive project work throughout these years and in this moment illustrates the continuing value in engaging Oliver Wyman given our decades-long and industry renowned risk expertise that has helped many of our clients find a path through these uncertain times

CRO Agenda summary

Get in touch to hear our latest thinking

While I recognize a lot of these points, I do think that we should not let the tail wag the dog

If the non-financial factors add predictive power, I don’t think there is any reason on a first principles basis to categorically exclude them. But of course, I do appreciate that these kind of factors can be subjective and therefore of lower quality, so we should keep an eye on that and encourage the clients to improve data quality

Also, many banks lump treatment of these kind of factors with overrides, which is almost always where the supervisory feedback is coming from. It is commonly used as a fudge factor, and that is poor practice. One can develop a disciplined, (high-quality) data based use of this type of information to avoid that pitfall

After a decade of negative or zero interest rates, European economies entered a rising rate cycle in 2022. Now, as markets anticipate the beginning of an easing cycle, deposit betas are expected to catch up. The question is, are banks prepared to compete for deposits in this environment, which is unfamiliar to a whole generation of bankers?

In 2024, a systematic approach to deposit management is not only a critical value driver but also a necessary defensive tool. By leveraging smart deposit management techniques, anchored on advanced analytics and operational capabilities, banks can optimise their deposit costs significantly.

What actions have you taken? Where can the community help you?

I would also like to learn more about this

@OP

In my experience, it typically depends on the bank's approach to the override:

Pre-calibration would typically be included if they are trying to include is as an statistical predictor of risk: i.e. you have some historical information that help you calibrate the specific weight and you only include the override if it increases the predictive ability of the model

Post-calibration if they want it to be a “penalization” mechanism for management (however this will not be fully compliant with EBA calibration guidelines for the use of overrides in IRB models)

The EBA starts dialogue with the banking industry on 2025 EU-Wide stress test methodology

The European Banking Authority (EBA) has published for informal consultation its draft methodology, templates, and guidance for the 2025 EU-wide stress test

This step marks the beginning of the dialogue with the banking industry and builds upon the methodology used in the 2023 exercise, with improvements reflecting new insights and regulatory changes. Some important changes are introduced, notably

Integration of the upcoming Capital Requirements Regulation (CRR3), set to be implemented on January 1, 2025. Considers the Commission’s announcement to postpone the application date of the fundamental review of the trading book (FRTB) Centralisation of net interest income (NII) projections and advancements in the market risk methodology to increase risk sensitivity

68 banks from the EU and Norway, including 54 from the euro area, will participate in the exercise, thus covering 75% of the EU banking sector. The expanded geographical reach and incorporation of proportionality features aim to boost efficiency while ensuring the relevance and transparency of the results

There is certainly precedent for this in loss forecasting, given various companies that need to follow both IFRS9 and CECL at different legal entity levels, and/or to follow different stress testing guidance for different regulators.   I can’t think of a case where I’ve seen it for the primary credit risk rating models however (at least not for literally the same exposures receiving two different ratings)

Hi RisbOWl community.

I have been thinking lately about the dynamics of the working relationship with 2nd and 3 LOD from a 1LoD perspective.

While there is much talk about these dynamics from a high-level, ERM or governance perspective, those of us who are in involved more on the day to day interactions need to make sure we 'walk the talk'.

While clear, continued communication is key, I have found the use of shared resources (such as evidence repositories, plans, collaborative query logs, etc) have really made a difference in the relationship we have built with our validators in the second line of defence.

What does the community think about common techniques for increasing cross-line of defence productivity.

Thank you in advance.

Very good questions. I’ve come across this as well on operational resilience and
cyber, where the challenges are similar

Some thoughts on this (also with the ex-regulator hat on):

Management bodies should acknowledge the challenge and be thoughtful around
how to address this, e.g. through training; reporting; succession planning
etc. We recently heard from a regulator that they were worried that sometimes
these topics are ‘outsourced’ to one person on the exec/ Board who
understands it, whereas they are looking for broader skills and knowledge in
the group. Again I think this is important to acknowledge, including the fact
that building those muscles take time In terms of ‘evidencing’ appropriate oversight and challenge by the Board,
when supervisors look at meeting minutes they would expect to see critical
questions being asked and a level of discussion (rather than the Board just
‘noting’ things) The quality of the materials and reports being presented to the Board is very
important, both data, but also someone bringing out the ‘so what’ and in
particular where there are areas of judgement and uncertainty, and where
there are trade-offs