Season 2 | Ep. 9: 2023 Lessons Learned & 2024 Risk Management Hot Topics

Welcome to the latest installment of the Risk Intel podcast! In this episode, we had the privilege of hosting Joseph S. Berry, Co-Head of Investment Banking at Keefe, Bruyette, & Woods (KBW), a Stifel Company. With over 25 years of strategic advisory experience, Joe shares his expertise and insights into lessons learned from 2023, today's regulatory landscape, and what are the risk management hot topics for 2024. Take a few minutes to learn more about this insightful interview below.

Reflecting on 2023

Reflecting on the tumultuous year of 2023, Mr. Berry offers profound insights into the unprecedented challenges faced by the financial industry. He delves into the unique dynamics that characterized the period, emphasizing the crisis of confidence that shook Silicon Valley Bank (SVB) and reverberated throughout the banking sector.

"2023 was unique...we had essentially a crisis in confidence in deposit safety." – Joseph S. Berry, Co-Head of Investment Banking, KBW

Mr. Berry goes on to explain that this crisis emerged because of rapid interest rate hikes coupled with liquidity concerns, leading to a profound impact on the banks' balance sheets and triggering regulatory interventions. His assessment provides a sobering reminder of the fragility of financial markets and the critical importance of deposit stability in maintaining market confidence. 

Furthermore, Mr. Berry's reflections of 2023 shed light on the broader implications for banks' financial results and regulatory landscapes. The crisis had ripple effects which permeated market activities and regulatory responses alike. 2023's events underscored the need for banks to adopt proactive risk mitigation strategies and fortify their risk management frameworks to navigate the uncertainties of the financial landscape effectively.

Lessons Learned in 2023

The lessons learned from last year offer invaluable guidance for banks as they navigate the complexities of the financial landscape in 2024 and beyond. Joseph Berry's insights illuminate key areas where banks can bolster their resilience and strategic preparedness to mitigate future risks effectively. Firstly, banks must prioritize deposit stability and shore up their asset-liability management practices to safeguard against potential crises of confidence. As Mr. Berry aptly notes, the crisis at Silicon Valley Bank underscored the importance of ensuring the safety of deposits, particularly in an environment of rapid interest rate fluctuations.

Secondly, proactive risk management emerges as a cornerstone for banks seeking to thrive amidst uncertainty. Joe's analysis emphasizes the need for banks to anticipate and address emerging risks promptly, leveraging robust risk assessment frameworks and scenario planning mechanisms. Moreover, enhancing regulatory compliance capabilities and fostering transparency in reporting processes are critical imperatives for banks to maintain regulatory trust and confidence. By embracing a culture of risk awareness and agility, banks can navigate market disruptions more adeptly and capitalize on opportunities for growth and innovation.

Lessons learns, to take in 2024:

1. Strengthen asset-liability management practices to ensure deposit stability in volatile market conditions.
2. Enhance risk assessment frameworks to proactively identify and mitigate emerging risks.
3. Invest in technology and data analytics capabilities to improve regulatory compliance and reporting processes.
4. Foster a culture of risk awareness and transparency across all levels of the organization.
5. Develop scenario planning mechanisms to anticipate and respond to market uncertainties effectively.
6. Collaborate with regulatory authorities to navigate evolving regulatory landscapes and foster trust and confidence.

Unpacking the Regulatory Landscape

Unpacking the regulatory landscape reveals a multifaceted environment characterized by evolving priorities and heightened scrutiny. Mr. Berry's insights shed light on key areas where regulators are focusing their attention, signaling important considerations for banks as they navigate regulatory compliance and strategic decision-making. One notable aspect highlighted is the increasing duration of regulatory reviews for bank mergers and acquisitions, with the average closing period for significant transactions exceeding 380 days. This prolonged regulatory scrutiny underscores the importance of understanding the regulatory approval process and managing expectations accordingly, especially for banks embarking on strategic initiatives involving mergers or acquisitions.

"Transactions that receive delegated authority often experience shorter closing periods, enabling banks to realize synergies and strategic objectives more efficiently." – Joseph S. Berry, Co-Head of Investment Banking, KBW

Moreover,  observations shared in this podcast underscore the significance of delegated authority in expediting regulatory reviews and enhancing deal certainty. As Mr. Berry aptly notes, transactions that receive delegated authority often experience shorter closing periods, enabling banks to realize synergies and strategic objectives more efficiently. However, the trend towards reduced delegated authority and heightened regulatory oversight poses challenges for banks seeking to pursue strategic transactions in a timely manner. By engaging proactively with regulatory authorities and demonstrating robust risk management practices, banks can navigate the regulatory landscape more effectively and expedite the approval process for strategic initiatives.

2024: Looking Forward

In 2024, the landscape of risk and risk management continues to evolve, presenting banks with both challenges and opportunities. Joseph Berry's insights offer valuable guidance for Chief Risk Officers (CROs) and banking executives as they navigate the risk landscape in the year ahead. One key observation is the importance of maintaining robust risk controls and infrastructure, especially in the context of mergers and acquisitions. CROs should prioritize the enhancement of risk management frameworks to accommodate the increased scale and complexity resulting from strategic transactions. This includes bolstering monitoring capabilities, stress testing procedures, and scenario analyses to identify and mitigate potential risks effectively.

Furthermore, Ed and Joseph go on to emphasizes the need for banks to remain vigilant in monitoring external risk factors, such as market volatility and regulatory changes. CROs should adopt a forward-looking approach to risk management, leveraging data analytics and predictive modeling to anticipate emerging risks and opportunities. Additionally, fostering a culture of risk awareness and accountability across the organization is essential for promoting proactive risk management practices. To that end, CROs can implement training programs and workshops to enhance risk awareness among employees and cultivate a risk-aware culture throughout the organization.

In conclusion, our guest, Mr. Berry's insights offer valuable guidance for banks seeking to navigate the complexities of the financial landscape in 2024. By reflecting on the lessons learned from 2023, prioritizing deposit stability, and addressing regulatory expectations, banks can position themselves for success amidst uncertainty. With a proactive approach to risk management and strategic planning, banks can mitigate risks, seize opportunities, and thrive in the dynamic world of finance. Stay tuned for more thought-provoking discussions on risk intelligence and strategic planning in future episodes of the Risk Intel podcast.

Be sure to connect with Joseph or Ed at any of the future KBW conferences found here.