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Announcements
Welcome to RiskbOWl – the first closed community of Risk professionals to share ideas, best practices and get a sense of peer practice, with the ability to anonymously ask questions, share perspectives, run targeted polls, and discuss recent regulatory developments. Find out the latest developments in the RiskbOWl community, including user guidelines, community rules, and latest functionality
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Our Insights
Discover our latest thinking across hot topics in risk management, drawn from serving the world's leading financial institutions and deep, industry-renowned expertise across risk and finance topics, including surveys, primers and points-of-view
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General Discussion
Use this space for questions or broader topics pertaining to risk management, from the latest industry trends and regulatory developments, to the latest news and risk headlines potentially impacting the sector
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Geopolitical Risk
With the global economy entering what can only be described as a critical inflection point, particularly in terms of trade, institutions are mobilising to better understand how the recent upending of trading relations will impact either lending portfolios or operations in the short term, and impacts of the shifting geopolitical landscape in the longer term. Join the discussion and compare notes on how your peers are managing these novel risks
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Credit Risk
The dedicated space to converse with peers and our experts on all aspects of credit risk, from the technicalities of modelling using internal approaches, credit decisioning and underwriting, credit risk appetite, governance and monitoring, provisioning, and regulatory requirements
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Treasury and Liquidity Risk
Recent years has seen the Treasury shoot up the agenda given the length of time the sector had operated in much more benign interest rate conditions. Sector turmoil in 2023 prompted supervisors and banks alike to ensure their ALM, liquidity, and interest rate risk capabilities were adequate for new rate realities. Discover the latest in our dedicated Treasury channel
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Operational Resilience
The channel for all areas pertaining to the ability of institutions to deliver critical operations through disruption, comprising of prudential risk frameworks, internal governance, outsourcing, business continuity and crisis response. Recent years has seen much more scrutiny on the reliance of institutions on technology and third parties, with the former very much on the supervisory agenda, perhaps most explicitly embodied with the advent of the Digital Operational Resilience Act (DORA) in Europe
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Regulatory Compliance
With an increasingly complex and interlinked risk landscape, comes an equally complex, corresponding regulatory framework, and it's no surprise how high up regulatory compliance now features on the bank agenda. Check in with your peers on the issues driving this key risk management capability, including compliance operating model, regulatory horizon scanning, and financial crime compliance
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Climate and ESG Risk
Channel dedicated to discussion on the supervisory and societal expectations driving banks to meet their sustainability goals, by embedding ESG criteria into enterprise risk management frameworks to address climate-related and social risks, as well as financial institution's climate risk stress testing capabilities, and disclosure requirements
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Stress Testing
From supervisory exercises, to internal scenario-planning, crisis simulation and war gaming, stress testing has become an established, post-GFC, risk management tool that institutions are expected to have in place in order to demonstrate the sustainability of their business model and ensure ongoing confidence in the bank. Discover the latest on stress testing in our dedicated channel
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Model Risk Management
Whilst dedicated risk management for the development, monitoring and validation of risk models has been long established, the advances in technology, analytics and data driving the banking industry has promoted such model risk frameworks to be updated and enhanced accordingly. Discover the latest impacting your peers across the model lifecycle - model definition, model vs non-model scope, validation, monitoring, periodic review, model risk reporting and governance
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Risk Culture
Organisational culture has long been recognized as a key component of risk-taking and risk-adverse behaviours, making it an important dimension underpinning the overall effectiveness of risk management more broadly within an organisation. Use this dedicated space for more discussion on methodologies, values, and behaviours within an organization that shape its approach to risk management and overall awareness and understanding of risk
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Risk Data and Analytics
With as much change in the risk landscape and operating environment, discover insights and discussion on how developments in data and analytics are impacting risk functions, including deployment of AI, regulatory pressures such as BCBS239
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RiskBowl Live - Wholesale Credit Risk Modelling Roundtable
London, 30th June
The inaugural session of our Oliver Wyman-moderated RiskBowl Live series brought together senior risk and modelling practitioners from the UK's largest banks. It was well-received by the attendees, which also included our guest attendee, Colin Jennings (senior ex-PRA, industry practitioner).
The discussion covered the finer points of current industry trends and practices of wholesale credit risk modelling, from more the general points, such as supervisory interactions, scales of IRB usage, and model implementation, to more segment specific questions for corporate, bank, and NBFI exposures.
Whilst we covered lots of ground, there were still many topics that we ran out of time to discuss that we will aim to cover at the next iteration of RiskBowl Live in November - reach out if you'd like to participate.
High-level Roundtable discussion summary
General IRB topics
Interaction with the Regulator
Firms do not have a clear view of PRA’s expectations on whether a model needs to be formally withdrawn or can be remediated (for example, approved with obligations similar to the ECB’s approach)
In general, models that have fewer issues are open for remediation, but in practice, banks have much more to do a lot given the moving target
It was noted that this stance may evolve with the PRA’s formal “minded to approve” approach, e.g., as they have done with mortgages models
An additional accelerator is the increased 2LoD responsibility - due to higher submission volumes, the ECB is allowing model validation teams to close lower severity findings (F1, F2) without further escalation
Raising the bar on IRB usage, including the F-IRB reversion
Several banks outlined a significant simplification of their modelling landscape over the last couple of years
Multiple institutions are evaluating F-IRB reversion for entire asset classes, contingent upon business case justification (especially where unsecured exposures are more prevalent)
It was emphasised that, consistent with CRR Article 494(d), reversion must apply to the whole asset class (or e.g., fully for the non-retail part of SME)
Model Implementation
The benefits of shadow implementation were discussed, including the ability to gather business feedback and provide evidence of use test
Although shadow implementation is a regulatory requirement under the ECB framework, its adoption for wholesale models in the UK remains limited
Segment specific questions - Corporates
Model segmentation
Historically, model segmentation has been influenced by business unit and system boundaries
Regulators are softly encouraging alignment of segmentation more closely with asset class definitions
Subsidiary rating and cascading
Count as a single obligor if it is the same rating
Credit risk officer decides if there is a support via rules (e.g., idea of an Obligor Risk Group (ORG))
LBO
Approaches to modelling LBO credit risk vary across banks: Some institutions treat LBO exposures as a calibration segment within corporate models; while others develop standalone LBO models, especially when aligned with specific business lines
When LBOs are included in corporate models, projected financials serve as input overrides, contributing to input override budget
Segment specific questions - Banks/ NBFIs
External Benchmarks (RiskCalc / Credit Benchmark)
Benchmarks are primarily used to investigate and validate developed models
Example of a funds modelling / calibration approach
Use of expert ranking approach (experts given a list of N funds to rank from 1 to N); sample size is a balance between coverage vs fatigue of experts
Van der Burgt methodology for calibration
Participants mentioned that the PRA was not focused on the sampling methodology used as long as representativeness was demonstrated