Insights
The US economy got off to a rough start in Q1 from the increases in the benchmark federal funds rate by the Federal Reserve to curb persistent inflation. The approval of another quarter-point interest rate in the May FOMC meeting marked the central bank’s tenth consecutive rate hike in 14 months.
The fastest rate-raising cycle in 40 years, unhedged interest rate and market risks, and fear of contagion contributed to the recent collapses
Read MoreThe financial services industry could be doing more to manage their exposure to the significant risks posed by a climate change phenomenon that is only worsening. Neglecting the micro and macro intricacies of climate change and failing to incorporate its associated risk into a risk agenda and/or framework can result in grave consequences that could otherwise have been avoided or mitigated industry will, at least initially, be disproportionally impacted by climate change owing to their relative size and portfolio compositions, failure to act accordingly and plan for the future can and will lead to adverse consequences.
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As we last reported in our - Building Operational Resilience across the Financial Services Industry in 2021 and Beyond, global regulatory bodies; The Bank of England, the Basel Committee on Banking Supervision (BCBS), and the Federal Reserve Board (FRB) have all issued significant guidance related to Operational Resiliency (OR) over the last several years. The COVID-19 pandemic has only accelerated the focus of regulators who have redefined their expectations for financial institutions’ resiliency frameworks and readiness.
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The past year has seen a pandemic of unprecedented proportions, increasingly frequent natural disasters, and immense social upheaval. In the last thirty days alone, a hurricane has decimated the coastal South, massive flash flooding has inundated the Northeast, and wildfires have continued to ravage the West Coast. While climate catastrophes have become commonplace, the unanticipated operational challenges posed by the COVID-19 crisis have taken the financial services industry by surprise, and it’s not the only major change that the financial sector has had to reckon with in recent months. The impending arrival of significant regulatory changes around climate risk, updated sustainability frameworks, and calls for social engagement have all thrown the importance of environmental, social, and governance (or ESG) considerations into sharp relief.
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“Basel IV” marks the final phase of Basel III implementation. Rather than further changes to capital requirements, these reforms are intended to “restore credibility in the calculation of risk-weighted assets (RWAs) and improve the comparability of banks’ capital ratios” by remedying issues the BCBS identified following the initial implementation of Basel III guidelines.
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Currently, there are in excess of $5 Trillion in US business and consumer loans outstanding that rely on LIBOR benchmarks. Every single lending agreement underlying these exposures will need to be remediated prior to the LIBOR end date. For a single agreement, negotiations with borrowers and legal representatives can take months. Creating a framework that balances the inherent complexities of moving to a new benchmark rate, client interests and preferences, and banks’ resource constraints is a delicate task.
Read MoreMonticello Consulting Group is a trusted management consulting firm servicing clients in the global financial services industry. Our mission is simple—to provide exceptional management consulting services by focusing on three core principles for our clients: value creation, superior execution, and uncompromising integrity.
