The Tariff Tearsheet – May 13, 2025

As promised, today’s Tearsheet focuses on the impact on banks, including financial sector risk buildup, investment banking paralysis, and a surge in demand for advisory services. We continue our pivot to bringing you more of our own insights; the slides displayed below are available to you to use. Sources include Bloomberg, Reuters, MarketWatch, Federal Reserve Bank of St. Louis, Apollo, Signum Global Advisors, Barron’s, and Oliver Wyman

U.S.-China tariff climbdown reflects tactical de-escalation, not strategic reset Markets cheered early tariff reductions, but effective duties still exceed 50%. With no leaders claiming credit, this muted climbdown appears engineered to stabilize markets while preserving decoupling pressure (Signum Global Advisors)

Tariff-induced stagflation fears amplify bank balance sheet strain
US banks are sitting on nearly $500bn in paper losses in their securities holdings as high rates persist. Loan books exposed to high-growth, low-profit sectors like tech and VC risk deeper cracks if credit deterioration accelerates (Apollo)

Tariff uncertainty freezes investment banking activity
April M&A volume fell to a 20-year low as companies delay strategic decisions amid volatility. Investment banks face vanishing pipelines and sliding bonus forecasts heading into H2 (OW Analysis, Reuters, Axios, Business Insider)

Tariff shock spills into credit markets, straining floating-rate loans and borrower confidence
Over $6bn in buyout debt remains unsold as syndication markets freeze. Credit standards are tightening, borrower appetite is falling, and inflation concerns are pushing up spreads (OW Analysis, Bloomberg, Reuters)

Tariff pressure exacerbates credit stress, but delinquency spike may lag
Front-loaded consumer debt spikes are beginning to reverse, and 30–90 day delinquencies are quietly climbing. High credit card APRs (21.4%) will likely accelerate defaults in H2 (OW Analysis, Federal Reserve Bank of St. Louis)

Flight to financial advice amid trade turmoil
From Gen Z investors to institutional clients, advisory platforms are seeing record engagement. LPL and Citi report double-digit AUM and revenue growth as clients seek protection strategies across geographies and currencies (OW Analysis, MarketWatch, Barron’s, Reuters)*

US – China tariff climbdown reflects tactical de-escalation, not strategic reset
Signum Global Advisors, 12th May 2025

The recent U.S.-China tariff rollback, while welcomed by markets, is better understood as a tactical easing rather than a signal of strategic rapprochement. Although the rollback occurred sooner than expected, the structure of remaining tariffs and the muted political response from both sides suggest a sustained posture of gradual decoupling. The policy design appears calibrated: low enough to avoid consumer shock, yet high enough to maintain leverage

Muted market understanding: While some relief is priced in, markets may be underestimating that effective U.S. tariffs on China still hover near 55%—comprising legacy (25%), fentanyl-linked (20%), and universal baseline (10%) layers.

No meaningful trade reboot: There is little expectation of formal trade talks resuming. Both Washington and Beijing seem content avoiding new escalation, without showing intent to build a cooperative framework

Strategic tariff design: Trump’s current tariff regime appears “self-sustaining”—engineered to avoid immediate disruption while driving long-term decoupling across supply chains

Political dis-ownership: Neither Trump nor Xi has publicly taken credit for the rollback, underscoring that this was a quiet, tactical adjustment—not a policy pivot

Global posture risk: The temporary de-escalation with China may give the administration room to take a harder stance with other partners. Watch for trade frictions with Europe, India, and Mexico to rise in the coming weeks

Watch the timing: The rollback was strategically timed, just ahead of China’s exemption expiry (May 13) and 10 days before the U.S.’s (May 23), highlighting the importance of procedural milestones in trade moves

Temporary pause, lingering uncertainty: The current rollback is set to expire August 12, marking the end of the 90-day tactical reprieve. While the timing was aligned with exemption deadlines, no formal negotiation framework has emerged – leaving policy uncertainty elevated and the risk of renewed escalation firmly on the table

Tariff-induced stagflation fears amplify bank balance sheet strain
Apollo, 13th May 2025

New FDIC data reveals US banks were still sitting on nearly $500 billion in unrealized losses on investment securities at the end of 2024—a stark reminder of the pressure rate volatility is placing on bank portfolios. While the losses have been mounting since early 2022, the renewed increase coincides with growing concern over a stagflationary environment, where rates remain elevated and credit risks begin to crystalize across vulnerable lending segments

Balance sheet overhang: Unrealized losses reached ~$500 billion, driven by mark-to-market hits to both Available-for-Sale (AFS) and Held-to-Maturity (HTM) securities as rates remain elevated. This was an increase of 32.5% from the prior quarter!

Stagflation scenario risk: In a prolonged high-rate environment with slowing growth, credit losses are expected to rise—particularly in high-risk lending categories like tech, growth, and VC-backed borrowers

Coverage warning: Borrowers in these segments typically exhibit weak earnings profiles and thin coverage ratios, leaving banks exposed if refinancing or rollover risk intensifies

Asset sensitivity divergence: Losses are notably skewed toward HTM books, limiting banks' flexibility to manage risk through asset sales or repositioning portfolios

Policy implications: Persistently high unrealized losses may constrain capital deployment, tighten credit availability, and raise questions around bank stress test thresholds under more adverse macro assumptions

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Tariff uncertainty freezes investment banking activity
OW analysis, Reuters, Axios, Business Insider, 8th May 2025

Investment banking pipelines are drying up as trade tensions inject extreme caution into corporate boardrooms. Since President Trump’s April “Liberation Day” tariffs, deal volume has slumped to levels not seen since the financial crisis. Uncertainty around trade policy and market volatility has pushed IPOs and M&A to the sidelines (and also triggering a sharp reversal in 2025 bonus expectations and a broader fear of prolonged inactivity across Wall Street)

Historic M&A slowdown: Global deal volume hit a 20-year low in April, with just 555 US M&A deals—marking the weakest monthly total since May 2009

IPO freeze: Companies like Klarna and Stubhub have pulled back from going public, citing tariff-induced market instability and board caution

Policy paralysis: The longer tariffs remain fully unsettled, the greater the risk of a “stop-start” market where uncertainty blocks capital formation and advisory revenue

Bonus pressure: Investment banking bonuses are now projected to fall 10–20% in 2025, a steep reversal from last year’s optimism. [Sales & Trading bonuses, on the other hand, are expected to be higher given market turmoil induced trading volumes]

Risk of compounding slowdown: Advisory and underwriting pipelines remain thin heading into H2; without a clear policy pivot, banks face deeper structural weakness in dealmaking revenue

OW Analysis - Post-"Liberation Day" volatility has frozen IPO pipelines, slashed M&A volumes, and triggered widespread bonus pressure—leaving banks bracing for a prolonged capital markets slowdown

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Tariff shock spills into credit markets, straining floating-rate loans and borrower confidence
OW Analysis, Reuters, Bloomberg, 12th May 2025

The ripple effects of tariff-driven volatility are now deeply felt in credit markets. Leveraged loan funds have experienced record outflows as floating-rate instruments struggle amid rising risk premiums. Simultaneously, concerns over consumer and business credit quality are mounting, with banks tightening standards and loan demand collapsing to levels not seen since 2020. As defaults loom larger, markets are increasingly pricing in credit deterioration—particularly in exposed sectors

Hung debt surge: Over $6bn in buyout-related leveraged loans remain stuck on bank balance sheets after syndication windows collapsed post-tariffs (Bloomberg)

Loan market freeze: Leveraged loan issuance has paused for nearly three weeks - the longest freeze since 2020 - while 93% of loans saw price drops after Trump’s April tariff move

Floating-rate pressure: Leveraged loan funds are reeling from outflows, with the Morningstar LSTA index hitting its lowest level since Oct. 2023 (OW analysis)

Credit demand collapse: Fed survey (SLOOS: Senior Loan Officer Opinion Survey: link) shows Q1 business and consumer loan demand fell to multi-year lows, with small firms hit hardest (Reuters)

Tighter lending standards: Banks are turning defensive, citing tariff-induced uncertainty as the top driver behind stricter credit conditions. Combination of reduced demand for credit and constrained supply of credit increases recessionary pressure.
• Inflation risks compound: Fed warns tariffs could both depress growth and re-accelerate inflation, raising the risk of credit deterioration in consumer-facing industries

OW Analysis Leveraged loan outflows, rising credit spreads, and a sharp drop in borrowing point to growing stress in consumer and business credit as tariff uncertainty reshapes risk appetite

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Tariff pressure exacerbates credit stress, but delinquency spike may lag
OW Analysis, Federal Reserve Bank of St. Louis, 9th May 2025

The U.S. consumer credit market, already under pressure from record-high interest rates, is showing early signs of distress. While delinquencies have climbed to decade highs, analysts caution that the full impact of tariffs on credit performance may not surface for several quarters. Households front-loaded spending ahead of expected price hikes in March, but now face higher borrowing costs and shrinking balances, raising concerns over future repayment capacity

Front-loaded debt spike: Consumer credit briefly surged in March as households rushed to avoid tariff-driven price increases, but balances have since declined YoY for the first time since 2020.

Delinquency risk building: Credit card balances past due by 30, 60, and 90 days are all rising, reaching their highest levels in over a decade

Delayed deterioration: Based on prior downturns, it may take 1–2 quarters for the true effects of tariffs to appear in delinquency rates—masking immediate credit quality concerns

Record-high APRs: Credit card rates surged to 21.4%—a 40-year high—fueling compounding balances as more Americans make only minimum payments

Stress concentrated in retail credit: Revolving credit balances have started to decline sharply, a reversal that may signal the early stages of household deleveraging amid tighter conditions

OW Analysis Delinquencies are rising from already elevated levels, but the full fallout from tariff-driven inflation and 40-year-high card APRs may take several quarters to materialize.

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Flight to financial advice amid trade turmoil
OW Analysis, Reuters, MarketWatch, Barron’s, 8th May 2025

As tariff shocks ripple across asset classes, clients are increasingly seeking professional advice to protect and reposition their portfolios. Market volatility, unclear trade trajectories, and recession fears have led to a “flight to advice” moment across demographics and geographies

Investors overwhelmed by market volatility: 56% of US investors now consider this the toughest investment climate they’ve experienced, per J.D. Power. Notably, 40% of self-directed investors are now contemplating turning to professional advisors for help navigating market turbulence

Generational shift: Gen Z and millennial investors, facing the double burden of macro volatility and lower financial resilience, are turning to wealth managers and digital advisory platforms at record rates

Tariffs are redrawing asset allocation: As capital flows shift away from U.S. dollar assets, particularly in Asia, banks such as Singapore DBS Group and United Overseas Bank have reported a surge in demand for local currency products and protective portfolio strategies

Advisory firms are already feeling the impact:

LPL Financial saw a 25% YoY increase in advisory and brokerage assets amid recent tariff-induced volatility, reaching $1.8T in AUM

Citigroup’s CEO echoed the trend, reporting a 24% jump in wealth revenues, underscoring broad-based gains across client segments.

OW Analysis Advisory services and wealth platforms see rising engagement as clients seek strategies to navigate uncertain markets

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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

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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 !

Welcome back to Risky Business, in which we take you through some of the headlines impacting the banking industry. Read on as we take stock of the Q1 reporting and the broad outlook from some banks over the course of reporting season; a quick overview of the FCA's and PRA's strategic priorities with publication of their respective business plans; and find out how the Bank of England is attempting to take a more unified stress testing framework following the launch of its well-received system-wide exploratory scenario exercise last year

Q1 Earning calls roundup - As Good as it Gets?

Given the tumultuous opening to 2025, earnings calls updates are being closely scrutinized to discern the impacts from the monumental shifts underway in the longstanding international, open market, free trade-based order. As we approach the end of reporting season, a pervading sense of caution from the economic uncertainty looks set to overshadow broadly positive performance over the quarter. Moreover, analyst questions for the most part attempt to glean from bank executives what could possibly be on the horizon from the market turmoil, such as JPMorgan CEO Jamie Dimon forecasting economic turbulence, and the bank reinforcing this caution with increasing provisions for loan losses from $3bn, up from $1.9bn over the quarter.

In another sign of the uncertain outlook, Deutsche Bank raised provisions to €471 million, 16% higher than anticipated, and signalled their preparedness for potential impacts of US tariffs on vulnerable clients by raising provisions by ~€100 million. Deutsche Bank's CFO, James von Moltke, cautioned that while he expected provisions for credit losses to remain within the guided range of €350 million to €400 million per quarter, tariff developments and broader geopolitical risks could cause swings in the €100 million figure. Also increasing provisions were HSBC, reporting expected credit losses by $202 million to $876 million in Q1, projecting a "low single-digit percentage" impact on revenues and an additional $500 million in incremental bad loan provisions in a scenario with "significantly higher tariffs".

With results largely positive for most banks reporting thus far, this could arguably be the best earnings banks may see this year, which given the uncertainty amidst the broader reconfiguring in trade, and geopolitical tensions, could be less positive in the coming months.

FCA and PRA Business Plans for 2025/ 26 published

As is customary for the end of the financial year, the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) have published their respective strategic and business plans, summarised below

FCA annual work programme 2025/26
The FCA's annual work programme for 2025/26 emphasizes becoming a smarter regulator by enhancing efficiency in data collection and digitizing processes. Initiatives such as the rollout of My FCA for unified access and "flexi collections" in RegData streamline submissions. These improvements aim to reduce the regulatory burden and expedite the authorisation process for quicker application assessments

Supporting growth entails boosting the UK's financial sector through competitive and innovative initiatives like reforming capital requirements and collaborating on AI advancement barriers. Efforts to simplify conduct requirements in commercial insurance and pension reforms are integral. Open banking initiatives and streamlined data processes further enhance market competitiveness

Helping consumers navigate their financial lives focuses on improving consumer resilience with regulated credit products like Buy Now Pay Later. The FCA is refining rules to ensure prudent use and encouraging industry innovation for consumer protection against financial shocks. Collaborative stakeholder efforts aim to develop policy frameworks that reinforce consumer financial stability

Fighting financial crime aims to reduce payment fraud and enhance market integrity by developing a data-driven detection system. The FCA facilitates cross-organizational data sharing to disrupt financial crime efficiently and narrow down exploitation gaps. Continual framework modernization seeks to safeguard investments and uphold consumer interests

PRA Business Plan, 2025/26

Here's a high-level summary of the PRA's section on Banking, in its Business Plan for 2025/26:

Implementing the Basel 3.1 Standards
The PRA is working to finalize policy and rules for the Basel 3.1 standards that are yet to be implemented in the UK. Near-final rules were published in 2024, addressing competitiveness and growth alongside international standards. Significant adjustments were made to lower capital requirements to support lending to SMEs and infrastructure projects, without increasing overall capital requirements. The implementation date has been delayed to January 2027 to align with US plans, ensuring a full rollout by 2030.

Bank Stress Testing
Stress testing remains a crucial tool for the PRA to evaluate the resilience of individual banks and the overall banking system against hypothetical adverse scenarios. The PRA and the Bank of England conduct these stress tests to fulfill both microprudential and macroprudential objectives, employing methods such as full-fledged Bank Capital Stress Tests. In 2025, a Bank Capital Stress Test will be carried out, focusing on systemic UK banks to assess risks related to economic cycles. This will inform the setting of capital buffers needed to fortify the banking system

Securitisation
In an effort to streamline the banking rules, many components of the UK Securitisation Regulation were transferred to the FCA and PRA rulebooks. The PRA plans a consultation in the latter half of 2025 aimed at enhancing the securitisation framework. This includes amending the securitisation standardised approach and adjusting capital treatments for residential mortgages, enhancing the scalability of financial markets.

Internal Ratings-Based (IRB) Models & Model Risk, Liquidity, and Credit Risk Management
Over the past decade, banks have become increasingly reliant on models and scenario analyses for future risk assessment. The PRA continues to work with financial institutions under the IRB approach, refining models and promoting the adoption of hybrid strategies for mortgage modelling. The focus in 2025/26 will remain on implementing SS1/23, encouraging banks to improve model risk management as an essential risk discipline. The PRA will ensure compliance with liquidity and funding standards, particularly following the liquidity crises of March 2023.

Future of Payments
The PRA contributes to innovation in money and payments by monitoring advancements in deposits and stablecoins. In 2025/26, the PRA aims to implement the BCBS standard on banks' cryptoasset exposures. Engagement with international bodies will continue to assess digital money and cryptoasset market developments

Future Banking Data (FBD)
The Future Banking Data project integrates the Banking Data Review and Transforming Data Collection efforts to simplify banking regulatory reporting. The initiative focuses on cost reduction and improving data relevance, quality, and timeliness, enhancing regulatory efficiency

Bank of England joins the stress testing dots
Risk Magazine, 29th April

The Bank of England (BoE) is advancing its stress-testing framework by integrating system-wide stress tests with traditional firm-level assessments. This initiative aims to achieve a comprehensive understanding of risks and the interconnectedness within the financial system, acting as a unified regulatory approach. Following the successful completion of the BoE's first system-wide exploratory scenario stress-testing exercise, which garnered positive feedback from both industry participants and regulators, the initiative seeks to connect system-wide assessments with specific sector tests concerning banks, insurers, and clearing houses, as stated by senior BoE official Nathanaël Benjamin.

Traditionally, the BoE has employed sector-specific stress tests, focusing on how bank segments respond to adverse conditions such as credit losses and liquidity pressures. With the creation of sectoral and system-wide frameworks, efforts are now directed at ensuring these approaches inform and enhance each other. Benjamin highlighted the disconnect between system-wide exploratory scenarios and traditional stress testing systems. In particular, traditional tests evaluate the resilience of individual institutions, whereas exploratory scenarios assess overall market stability, irrespective of individual player failures.

For future preparedness, the BoE plans to continue investing in system-wide stress evaluations to monitor emerging vulnerabilities within less understood areas of finance. Such proactive strategies are intended to uncover overlooked risks. Benjamin emphasized that these stress testing exercises serve as crucial tools for illustrating potential scenarios and preparing market participants for future challenges. By sharing insights gained from these tests with the public and institutions alike, the BoE aims to enhance overall market preparation and readiness.

Moreover, the European Central Bank (ECB) is expanding its system-wide stress models to include central counterparties (CCPs), reflecting a broader regulatory trend aiming to fortify stress testing frameworks by covering a wider range of financial institutions. The ECB's move aligns with increasing recognition of the interconnectedness in the financial systems, necessitating comprehensive assessments that take systemic risks into account. This initiative is part of an endeavor to improve financial system robustness against external shocks.

In summary, the integration of system-wide and individual stress testing frameworks by both the BoE and ECB signifies a progression in regulatory practices focusing on financial stability. Collaboration between varied testing frameworks hopes to yield a more resilient financial system capable of withstanding economic shocks. Transparency and information sharing will be crucial in ensuring preparedness among market participants as both institutions pursue these regulatory strategies. This endeavor reflects a commitment to proactive measures against potential financial sector vulnerabilities.

In the context of credit risk reporting we are looking into name concentration (connected subsidiaries of a larger holding, which are active in different industries). Besides qualitative indicators (shared ownership, same people sitting on respective boards etc), one dimension we would be looking for are any quantification of correlation (of default) between industries, to get some level of feeling for if “if subsidiary A is in trouble due to its industry, should we be worried about the others too due to industry correlation?”

The above would be used for indicative default correlations – anyways there would be expert judgement overlaid on top, so what we are looking for are any readily available numbers or similar analyses

For this, we would be looking for any pointers on figures available/ approaches for

Correlation of default rates across industries Something roughly proxying above, e.g. sector equity correlations, EDF correlations

Many thanks in advance!

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?

The ORX global reference taxonomy was developed based on 60+ risk taxonomies used by financial institutions around the globe is probably the best representation of peer practices and has been adopted, with tailoring for the specific organization, by many since the taxonomy was developed ~5 years ago.

Within the ORX global reference taxonomy, regulatory compliance is a separate L2 category within the NFR taxonomy, and is defined as “the failure to comply with any legal or regulatory obligations that are not captured through other Level 1 risks within the NFR taxonomy”, because the risk of non-compliance with specific legal or regulatory obligations is relevant to most Level 1 risks in the NFR taxonomy and therefore we wanted to avoid overlap with these risks

@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)

In the context of the 2025 EBA Stress Testing exercise we’ve convened our sixth EBA Stress Test industry roundtable, involving representatives from 25 of the largest European banking institutions across ten countries.

While each bank is looking to approach the stress testing exercise from its own unique perspective, we’ve found that two common trends seemed to emerge:

Banks expect the anticipated depletion of the Common Equity Tier 1 (CET1) ratio under adverse scenarios to align closely with the outcomes seen in 2023.

Banks see the operational complexity of the exercise as their main challenge. Participants were concerned about potential CRR3 re-statements (particularly the difficulty in accurately projecting a CRR3 Fully Loaded framework that incorporates all CRR3 phase-ins expected by 2032) as well as the need for top-down calculations to estimate CRR3 compliant RWAs, which could complicate reconciliation efforts and impact result accuracy.

Other concerns raised by participants included the new timeline and significant changes to Quality Assurance processes - especially regarding potential on-site visits and inspections by the European Central Bank (ECB) - and the unpredictability of the new Net Interest Income (NII) platform and Quality Assurance machinery, which banks believe leaves them with less control over projections and adds to the uncertainty of the exercise.

Overall, it was insightful to see how given the inherent complexity of the exercise participants agreed on the need for thorough upfront preparation and a robust end-to-end stress testing infrastructure as conditions to success. What are the main concerns at your organisation? How do you feel your competitors will react to EBA’s requirements for this year’s stress testing?

Graphics: How Oliver Wyman supports Financial Institutions carry out stress testing:
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Lots of good answers here.

One tough learning from implementing this at scale is that unlike traditional ML, automated tests can only capture a small fraction of what can go wrong with GenAI. While the automated validation is necessary, it is not sufficient.

We have typically needed to also develop large manual testing protocols for releases, where humans (either developers or a set of test users), attempts a mixed of predefined and new prompts, and judge the quality of the answers. Often we will uncover “issues” that are very subjective, such as the answers technically being correct but pulling from different files that we wished, or answers being less/more detailed than the average user prefers, or an entirely new file format having issues (hence not covered by tests yet), or a million other things!

For one of our recent clients, we ran “hackathons” along with releases where both new and power users would try various prompts and score the output. It was incredibly helpful to identify things the tests had failed to see

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.

🎬 Lights, Camera, Compliance! 🎬
Imagine you’re in a high-stakes thriller, much like Inception.

Just as Cobb and his team navigate complex dream layers, banks and financial institutions today are navigating the intricate layers of BCBS 239. But instead of dreams, they’re dealing with data and the regulation that aims to enhance risk data aggregation and reporting capabilities.

What is BCBS 239?
At its core, BCBS 239, introduced by the Basel Committee on Banking Supervision, is a set of principles designed to ensure that banks can effectively manage risk through accurate and timely data reporting. Think of it as the ultimate guide for navigating the labyrinth of financial data, ensuring that institutions can make informed decisions and respond swiftly to crises.

The Challenges: A Real-Life Drama
However, just like in a good movie, the path to compliance is fraught with challenges. Here are a few key hurdles that institutions face:

Data Silos: Many banks operate with fragmented data systems, akin to a band struggling to harmonize. Each department has its own version of the truth, making it difficult to achieve a cohesive view of risk exposure

Legacy Systems: Picture a classic car that’s seen better days. Many institutions rely on outdated technology that hampers their ability to aggregate and report data efficiently, making compliance feel like an uphill battle

Cultural Resistance: Change is hard, much like a character in a romantic comedy who refuses to acknowledge their feelings. Employees may resist new processes and technologies, fearing disruption to their routine

Regulatory Complexity: The regulatory landscape is constantly evolving, much like the plot twists in a suspense thriller. Keeping up with these changes requires agility and foresight, which can be a daunting task for many organizations.

The Road Ahead
So, how can institutions turn this potential drama into a success story? Here are a few actionable steps

Invest in Technology: Embrace modern data management solutions that break down silos and streamline reporting processes. Foster a Culture of Compliance: Engage employees at all levels, emphasizing the importance of accurate data for decision-making and risk management. Stay Agile: Regularly review and adapt to regulatory changes, ensuring that your compliance strategies remain robust and effective.

While BCBS 239 presents its challenges, it also offers an opportunity for banks to enhance their risk management frameworks. By embracing the journey with the right tools and mindset, institutions can transform compliance from a burden into a strategic advantage.

Let’s continue this conversation! What challenges have you faced in navigating BCBS 239? How have you overcome them? Share your thoughts below! 👇