Series on Finance & Risk in 2023
At the end of the year, we traditionally look back on our key topics in 2023.
In January, our regulatory experts got the focus topic of Finance & Risk off to an exciting start with the fourth part of our RWA management series (available in German only). Following on from the third part, they addressed the fourth component of the management circle, “RWA-oriented pricing”. Our BankingHub authors agreed that growth at any price is a thing of the past. Instead, they argued that qualitative (i.e. risk/return-oriented) growth was increasingly necessary from a business perspective. In the fifth part of the RWA management series (available in German only), published shortly afterwards, our authors turned their attention to the importance of RWA management for bank-wide asset allocation.
An important topic for us from a supervisory and market perspective was the rise in interest rates, which was unprecedented in magnitude, speed and form and caught many banks off guard at the beginning of the year. In the first quarter, our authors examined it in a short article on interest rate and liquidity risks (in German) and in an article on the deposit business of regional banks. The rise in interest rates has suddenly made the deposit business attractive again from the customers’ point of view. Whereas in the past few years the investors’ focus was on demand deposits and securities, traditional interest-bearing banking products are now regaining popularity.
On June 22, 2023, the ECB submitted for consultation the updated Internal Models Guide, revising its expectations for the use of internal models. What impact does this have on internal rating-based approaches to the assessment of credit risks (IRBA models)? Our experts took a close look at the audit guide for internal models presented by the ECB for consultation in September and provided initial answers (article in German).
“Yet another §44 focus review.” Comments along these lines were uttered quite frequently over the last few months. Since mid-2022, BaFin has been busy establishing a new topic that had not previously been in the focus of regulatory audits. The supervisory authority has been screening banks’ real estate portfolios for a year now and announced at the end of January 2023 that it would expand the audits based on the findings to date. In the summer, our authors therefore described our initial practical experience to date with the new “real estate business” audit type.
The importance of aggregating risk data became evident during the 2007–2009 financial crisis and has recently been further underscored through the data collection initiatives by the ECB’s banking supervision amid the pandemic and other stress scenarios. Our authors therefore provided a BCBS 239 snapshot in October and called on banks to address the compliance gaps in their risk data aggregation and risk reporting processes.
(Savings) banks still have to expect regular special audits. In the first article of our new four-part series on special audits on the German-language BankingHub, our experts explain the (new) approach of banking supervision to special audits. We have just published the second part on the challenges of the new ICAAP (available in German only). Against the backdrop of the first ongoing pilot audits on the methodology and implementation of the ICAAP concept, our experts provide insights and exemplary findings on the ICAAP from special audits at institutions. Based on the institutions’ limited experience, it seems advisable that they prepare thoroughly for a corresponding review of the risk-bearing capacity concept. Any period of grace is now definitely over! Stay tuned for the upcoming parts of the series! Our regulatory experts will specifically address the requirements and regular findings in the lending business and in IT/BAIT.
Annual topics in the context of ESG
The topic of ESG (Environmental, Social, Governance) has also kept us busy again this year, and in our Research & Markets section, our authors have been asking, among other things, how financial institutions should deal with the extensive ESG data requirements? A key question which they address in the article on ESG data collection in May. After all, in the past few years, the EU has continuously expanded its ESG regulatory framework.
Following on from our series on carbon accounting and decarbonization at financial institutions launched at the end of 2022, in September our authors looked at the logical next step after carbon accounting as discussed in the first article: developing a science-based pathway aimed at reducing financed GHG emissions to achieve “net-zero” status.
With the publication of IFRS S1 and IFRS S2, the first two non-financial standards, the International Sustainability Standards Board (ISSB) has reached a significant milestone in sustainability reporting (article in German). Once endorsed, companies worldwide will be required to report on various aspects, including sustainability-related risks and opportunities, governance and strategies, key performance indicators and targets as well as risk management, and to disclose specific climate-related information concerning the company. Our authors took a detailed look at the new standards and the resulting need for action.
ESG is now an integral part of the funding strategy, too: banks have to deal with the growing shift in priorities within society as a whole and among the relevant stakeholders in particular. The importance of green funding and sustainable sources of financing as part of strategic ESG positioning is increasing at all levels, be it among investors, customers, regulators or employees. In 2023, we published a two-part article on this topic. While our authors took a comprehensive look at the various types of ESG bonds in the first part, in particular using the example of green bonds and customer deposits, in the second part they explained the basic steps that a bank must take to achieve green bond issuance capability.
Market developments, trends and especially opportunities for AI in banking
In addition to ESG and regulatory topics, we continually provided you with insights into our new studies and informed you about developments relating to relevant market and banking players over the course of 2023. In this context, we can recommend, for example, our authors’ observations on the risk of a paradigm shift in the financial industry due to the impact of BigTechs and the market forecast for the lending business based on an analysis of past events.
In general, we recommend taking a look at the quarterly summaries of our zeb.market.flash issues. In these issues, our authors regularly provide you with an overview of the latest developments at the world’s largest banks, focusing on a key topic which is analyzed over time.
While we’re on the subject of trends and current developments, we always recommend checking out our Innovation & Digital category. A big topic for us this year: (generative) AI and its possible applications in the financial sector. Inspired by a corresponding client inquiry, our authors looked into automatic text summarization and an alternative approach to ChatGPT for text summarization. We also examined new cybercrime threats arising from the use of AI and looked at the limits of AI for IT security in our article on cyber security (currently in German only). Furthermore, we assessed the opportunities for AI in HR strategy against the backdrop of the worsening shortage of skilled workers. In our HR category, our authors have analyzed the possibilities of AI for the HR sector (currently available in German).
In addition to our AI topics, we would also like to draw your attention to our articles on DLT, smart contracts, crypto wallets, DeFi, dApps, crypto securities registers, cryptocurrencies, security tokens, crypto securities, electronic stocks, crypto fund units and NFTs. How up to speed are you with these topics? Our esteemed digital assets colleagues explain the components of the DLT infrastructure, variants of electronic securities, tokens and the use of DLT in the respective topic articles.
Most read interviews in 2023
In 2023, our authors once again reported exclusively on events for you and spoke to industry representatives. In this annual review, we would therefore like to give you brief excerpts from the three interviews that were especially popular.
- How does Volksbank eG Südheide – Isenhagener Land – Altmark cooperate with regional and national partners? How is digitalization expertise bundled regionally? René Lange and Christoph Kerle had the opportunity to ask Tjark Klindworth from Volksbank eG Südheide – Isenhagener Land – Altmark these and other questions in July.
- Building society savings plans as financial products are currently making a comeback. The number of new contracts is rising sharply. Reason enough for us (Madita and Julia) to talk to Mike Kammann, Chief Financial and Risk Officer at Bausparkasse Schwäbisch Hall AG, in our two-part June interview about current developments on the residential real estate market and in building society savings as well as trends and forms of housing of the future (available in German only).
- Recently, the relevance of an IBAN name check functionality has increased enormously. In a brief interview with Nikola Jelicic and Anna Vyazmina in October, Michael Hülsiggensen gave us an insight into the developments of instant payments and the associated challenges in combating fraud.
- The fact that our article on the 7th MaRisk amendment (available in German only) by Dr. Ulf Morgenstern, Bastian Walkhoff, Christian Witte and Lukas Lindemann was among the most popular ones this year, comes as no surprise to us, as we know that you follow our articles on finance & risk with particular interest. The requirements from the EBA guidelines on lending and credit monitoring are at the heart of the 7th MaRisk amendment published in June.
- Our look at the workforce of established financial service providers may well be of similar interest to you. In this article, Dr. Christina Block and Christian von Schirach take a look at the shortage of skilled workers and its consequences. The complexity of the issue and the question “Where do we start?” have become an essential part of most board meetings. This is a good thing, because without a strategic focus on recruitment, employee retention and personnel development, the shortage of skilled workers will become an existential risk. In any case, the changes in the labor market mean that HR management will take on even greater strategic importance and should be seen as a significant player in the company.
- How can transformation in construction financing succeed? In the early summer of 2022, the turning point in construction financing was already noticeable, and the question of the consequences and changes it would bring was on the table. In an interview with Marina Fleischhauer, head of the ecosystems department, and Daniel Werther, sales director for construction financing at Volksbank Mittelhessen, our author Hans-Jürgen Scharf discussed opportunities for change, the transformation process “from construction financing specialist to home construction and improvement advisor”, and experiences gained to date
As you can see, 2023 has once again presented us with a wide range of different topics, the wealth and breadth of which we can hardly do justice to in this article. We hope that we have been able to give you a good overview and are now taking a winter and editorial break until mid-January. We wish you a wonderful Christmas with your loved ones and look forward to providing you with exciting articles and interviews again next year. Until then, happy holidays and a healthy start to the New Year!