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The do-it-all machine: model risk in the age of generative AI
As LLMs take on more tasks, banks are under pressure to manage the risks from hundreds if not thousands of new applications.
Of 13 banks that Risk.net canvassed, only Bank of America and Goldman Sachs subject LLMs to model validation by default. The remainder, including Citi and JP Morgan, take a flexible approach depending on the level of risk.
The divergence is fuelling a debate over whether the SR 11-7 supervisory guidance for model risk is still fit for purpose.
In the age of GenAI, why do we still need good models?
Jean-Philippe Bouchaud says models can guide artificial intelligence through regime shifts and away from overfitting
UK rethinking tougher capital rules for US bank subsidiaries
US endgame draft would trigger UK Basel III trap floor for foreign banks, but PRA is reviewing
Wells Fargo tops US banks’ financing of private credit
Bank reports $71bn in loans and commitments, but reporting differences cloud comparisons
Top 10 op risks: AI upends risk taxonomies
AI risk enters annual poll in fifth, but firms split over treating it as a standalone risk or a cross-cutting driver
Top 10 operational risks for 2026
Industry shares intel on biggest collective threats, as well as remedies and loss gauges
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Basel III Endgame
FRTB models find salvation in US Basel III proposal
Changes to P&L attribution test and NMRFs make IMA viable for US banks, risk managers say
Limited RWA gains support rethink on Fed output floor
Advanced approaches cut RWAs only marginally across US banks
US blows the floors off Basel III
Barr criticises “downward deviations” in US rule; Bowman rejects “blind adherence” to global standards
AOCI reinclusion would strip $49.5bn from US bank capital
Schwab, Ally and Fifth Third face largest CET1 hits under Fed Basel III endgame proposal
Risk Quantum
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Risk Quantum tracks thousands of data points across hundreds of metrics from organisations that represent a cross-section of the financial system. Published daily, articles are short and broken into chunks – the facts, the context and a brief commentary – and use data visualisations to get each story across.
Wells Fargo tops US banks’ financing of private credit
Bank reports $71bn in loans and commitments, but reporting differences cloud comparisons
Risk Benchmarking
Top 10 op risks: AI upends risk taxonomies
AI risk enters annual poll in fifth, but firms split over treating it as a standalone risk or a cross-cutting driver
Middle East crisis
Iran confusion makes the case for causal modelling
A new test model built using Claude suggests oil prices may surge back above $100
How the Iran war wreaked havoc on consensus US rates trades
Hedge fund steepeners, swap spreads and vol-selling strategies were hit as conflict forced stop-outs during March
Has the Iran conflict made FX untradable?
FX options volumes jump despite high costs and short-lived opportunities
EU can handle energy price pressure – it’s been here before
Reforms made after Russia’s invasion of Ukraine have made region more resilient to energy shocks, officials say
JGB basis trade throws off the shackles
Japan’s cash-futures arbitrage on the rise despite Iran volatility and BoJ-driven bond scarcity
Artificial intelligence
The MIT professor giving LLMs a ‘brain scan’
Hui Chen’s research is yielding new ways to interpret – and steer – AI models
Iosco chief talks cyber, AI and clearing
Buenaventura discusses Iosco’s role in aiding market resilience and cross-border co-operation
New LLMs are proving to be surprisingly good quants
Strides in AI’s ability to do maths mean models can plausibly help with research
FHLB Cincinnati explores AI to spot failing banks
Agentic model detects anomalies, monitors sentiment and drafts credit reports for analyst review
The swap futures comeback
CME cross-margining and Reit hedging drive new growth in Eris contracts
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