Josef Ackermann, Anshu Jain, Juergen Fitschen, John Cryan, Christian Sewing – there have been five chief executives of Deutsche Bank during the bleak, bruising years since 2012, but only one chief risk officer (CRO). How has Stuart Lewis done it?

Some CROs would try to avoid answering that. Lewis – a straightforward, softly spoken Scot – takes it on.

“We do a good job of understanding financial risk. You saw that in 2008 and afterwards,” he says. “I think our biggest failing was on the non

COMMENTARY: Too quiet

The human disaster of 2020 has been mirrored in the macroeconomic data – the lists, lengthening each day, of the sick and dead of the pandemic are echoed by reports of rising unemployment, economic contraction, business failure and spiking debt.

In that context, one report on Risk.net this week might have come as a surprise – total operational risk losses for the first half of 2020 were only just over half the figure for the same period in 2019, just $7.39 billion against $14.28 billion.

If by this point in 2020 you’re instinctively suspicious of anything that looks like good news, well, you’re thinking along the right lines. This does not in fact represent an unexpected and welcome improvement in the ability of financial institutions to stop tripping over their own feet. It doesn’t even reflect that business has slowed with the economy – fewer transactions, fewer loans, less activity generally – and so there are fewer operational risk...

The London Metal Exchange is understood to have been left frustrated by its failing grade in the European Securities and Markets Authority’s clearing house stress test this week, after the watchdog subjected its default resources to price shocks that were up to three times more severe than the worst one-day falls on record in key base metal markets.

On July 13, Esma released the results of a stress test for Europe’s largest central counterparties, which simulated two scenarios: a large price

In an ironic twist on the notion of futurism, it is conceivable that, for asset managers, the post-Covid landscape will look less like Fritz Lang’s Metropolis and more like Little House on the Prairie. Certainly, managers are preparing for an operating environment that will look dramatically different from the densely city-centric concentrations of the pre-Covid world – with a greater dispersion of capabilities and a higher proportion of staff working from home.

As the pandemic continues to

Jump to In focus: H1 op risk losses | Spotlight: SEC fines Telegram

June’s largest loss was Nordic lender SEB’s $107 million fine for anti-money laundering failures in its Baltic operations. This is the second fine for AML failure handed out this year by the Swedish regulator (FI), which in March fined Swedbank $397 million for similar failures in its Baltic subsidiaries.

FI’s investigation covered the period between 2015 and the first quarter of 2019, in which period it found the bank had

When ABN Amro Clearing sustained a $200 million net loss from New York-based hedge fund Parplus Partners, it contacted its hundreds of clients to explain what had happened, and reassure them all was well.

But as the months rolled by, firms’ curiosity has shifted from what happened in March to what will happen in August.

That’s when the lender will announce the results of a major review of its corporate and investment banking division, which suffered a loss of €575 million ($649.8 million)

COMMENTARY: Is Covid a conduct risk?

The Fed is under pressure to predict the future – not an easy task at any time. This week, Risk.net reports on the growing clamour from US banks for the central bank to provide the results of its Covid stress tests and a new set of updated scenarios – and quickly, before they become obsolete as the pandemic burns through the US.

It’s still impossible to predict the full extent of the damage – human and financial – that the pandemic will cause in the US. Its impact in other countries has been highly varied, and in a way that few could have predicted in advance.

No-one should have been caught entirely off guard by the outbreak, in late 2019, of a novel and highly infectious respiratory disease. A pandemic of this kind has been top of the UK government’s national strategic risk register for the past 10 years or more. True, it anticipated a novel influenza virus rather than a coronavirus as being most likely – as indeed did...

COMMENTARY: Failing better

The Covid-19 pandemic has shown how bad a worldwide operational risk crisis can get. Underestimating the danger of such a crisis is a black mark for op risk managers. The topic didn’t even make it into this year’s Top 10 Op Risks, with almost no respondents to our survey mentioning it even though the outbreak had already broken out of China, and despite multiple near misses or less serious incidents (Sars, Mers, H5N1, Ebola) in previous years.

Why not? As Risk.net reports this week, one problem was a refusal to consider that a pandemic of this scale could ever happen. The organisations that modelled pandemics considered “regional, not global” outbreaks – damaging, but limited in scale and extent, along the lines of the 2003 Sars epidemic in East Asia. It’s a known problem of scenario planning. A desire for psychological comfort means that, when asked to consider worst-case scenarios, people tend instead to describe the worst scenario...

The Covid-19 era of forcible remote working is creating new threats and vulnerabilities in banks’ IT infrastructures – and new bad actors to exploit them, information security experts fear.

The coronavirus pandemic has forced most major US and European financial firms to embrace remote working for the vast majority of their staff. That has made it far more difficult for surveillance teams within banks to monitor data for suspicious or unusual activity, and root out behaviour that poses a

Lions and tigers and bears, oh my. A terrible trifecta of operational, legal and conduct risks could be lying in wait for unsuspecting banks on the Libor transition road. Financial institutions should prepare themselves for these half-hidden hazards, say op risk experts – or face brutal consequences.

Among the challenges of educating clients of varying size and sophistication, experts anticipate the potential for claims of mis-selling, of negligent advice – or of inadvertently providing

COMMENTARY: How close was it?

Operational problems spiked in late March as the coronavirus pandemic accelerated. The combination of rapid evacuation of offices and record-high market volatility put institutions around the world under pressure. Risk.net reported on this before and this week looked at how one bank coped, and at how close those operational problems came to causing a systemic crisis.

UBS seems to have done well – the Swiss bank made the switch to a virtual desktop system some four years ago. Most banks use virtual private networks, in which employees working remotely have the software they need on their laptops, and connect with the bank through an encrypted “tunnel” – meaning they can work as though in the office. Virtual desktops mean the software is centrally held, in a server or on the cloud – the employee’s laptop is simply a “thin client” that accesses the software as required. It’s more complex to implement, UBS says, but makes updates...

More collaboration between central counterparties (CCPs), vendors and buy-side firms is needed to prevent dangerous operational bottlenecks from developing in futures and options markets, say clearing members, after a massive spike in trading volumes in March due to coronavirus-induced volatility saw missed margin payments and trades being left on the books of the wrong clearing brokers.

Back-office systems buckled in the wake of a massive spike in volumes during March’s coronavirus rout

The head of London’s largest futures clearing house has voiced support for measures that would see clearing house margins stay permanently higher once the current period of heightened volatility sparked by the Covid-19 pandemic subsides.

Speaking at an industry event on June 24, Ice Clear Europe president Hester Serafini voiced tentative support for the idea of reviewing volatility floors at CCPs to encourage “more margin stability over time” – but argued any such moves would have to be adopted

With the coronavirus crisis rattling markets and undermining the creditworthiness of even rock-solid firms, US banks have seen risks gauged using their own models leap higher relative to regulator-set standardised measures. Given that the latter are far clunkier than banks’ internal indicators and respond more slowly to changing credit conditions, this could have wide-ranging implications for capital allocation.

As of end-March, three systemically important US banks – Citi, Goldman Sachs and

In the 1980s, Italian drinks brand Martini promoted itself with the slogan: “Any time, any place, anywhere.” Banking giant UBS is channelling a similar spirit for its remote working setup.

The system, dubbed A3 – “anytime, anywhere, and any device” – has been put to the test during the Covid-19 lockdowns that have confined banking employees across the world to their homes since March.

A3 is a virtual desktop infrastructure, or VDI. It aims to give remote users the same access and functionality

Lions and tigers and bears, oh my. A terrible trifecta of operational, legal and conduct risks could be lying in wait for unsuspecting banks on the Libor transition road. Financial institutions should prepare themselves for these half-hidden hazards, say op risk experts – or face brutal consequences.

Among the challenges of educating clients of varying size and sophistication, experts anticipate the potential for claims of mis-selling, of negligent advice – or of inadvertently providing

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For banks and investors, March’s explosion in volatility across asset classes was an abject lesson in markets’ inability to defy gravity forever. For Dmitrij Senko, chief risk officer of Eurex Clearing, the meltdown was a valuable stress test of the margin framework he began working on almost a decade ago – one he argues they achieved a passing grade on, despite a few wrinkles.

What irked dealers more than the unprecedented number of margin breaches that occurred as markets nosedived was their

It’s a question that has exercised banks for almost two decades: should they use internal risk models or regulator-set standardised approaches to size their credit risk capital requirements?

Models offer a more risk-sensitive means of weighing capital, and a more granular understanding of the credit exposures within lenders’ loan books – making for a more efficient allocation of capital. So say proponents of internal approaches.

Critics counter that letting banks run wild with their own models invites disaster, as firms will be incentivised to lowball their exposures to minimise capital charges. Investigations by European watchdogs suggest there’s some truth to this. Standardised approaches, the argument runs, guard against this abuse.

In practice, the debate is not so black and white. Most of Europe’s biggest banks use the internal ratings-based (IRB) approach for some of their credit portfolios, and the standardised approach for the rest. A...

The uncertainty hanging over global markets should not affect Deutsche Bank’s efforts to sell off the remaining parts of its non-core business ahead of a self-imposed 2022 deadline, according to Stuart Lewis, the lender’s chief risk officer.

“I don’t think the coronavirus will imperil the 2022 wind-down target, since that’s a fair amount of time to get through the work required,” says Lewis.

In a forthcoming interview with Risk.net, the risk chief also justifies Deutsche’s decision to smooth

Fuelled by favourable funding conditions, corporate bond issuance has been buoyant since the 2008 financial crisis. According to OECD estimates, global issuance averaged $1.8 trillion annually between 2008 and 2019, more than twice the amount during the pre-crisis period of 2000–07. Outstanding corporate debt worldwide also doubled from 2008 to 2019 to reach $13.5 trillion. But it is not only size that matters. A concern has been the trend of an ever-larger share of corporate issuance in lower

Over the next several months, the US Federal Reserve will guarantee up to $600 billion in loans to small and medium-sized businesses as part of its Covid-19 relief effort.

The central bank originally wanted the four-year loans to reference its preferred replacement for US dollar Libor, the secured overnight financing rate (SOFR) – doubling at a stroke the amount of US dollar debt linked to the new benchmark.  

It wasn’t to be. After a volley of complaints from banks, the Fed backed down and

The volatility unleashed by the coronavirus selloff in March that triggered an unprecedented number of margin shortfalls across futures and options markets around the world will likely lead to margin requirements being set permanently higher, according to the chief risk officer of the world’s largest futures clearer.

“There should be a discussion on how high base margins and floors should be,” says Dmitrij Senko, the CRO of Eurex Clearing, in an interview with Risk.net. “For sure, I think some