How AI Will Change Risk Mitigation

Why risk management is more important than ever

Market volatility has been increasing for the past two years between macro events, including the war in Ukraine, and rising financial pressures, such as increasing interest rates and fears of recessions. Then, add the recent SVB and Signature bank failures and you have what John Bricso, Coherent CEO, describes as an “incredible intensity and focus on the stability and accuracy of how banks are forecasting their risk.” 

Regulators are looking at risk not just in individual models, but across a financial institution’s entire portfolio to see how well risk is really managed. The SVB collapse highlighted that some institutions have gaps in understanding the real-time impacts of various model complexities and synergies. Regulators are increasingly focused on adding governance to how models interact with each other to avoid a repeat SVB situation.  

How do modeling tools help or hinder risk management?

Financial institutions use an incredible amount of data modeling. While some use sophisticated programming languages like Python and R, the most utilized tool is spreadsheets. Spreadsheets exist in nearly every part of all financial institutions, and it is exactly where the risk in model connectivity lies. Regulators want to focus not just on the tools used to create models, but also on how the logic and accuracy of the data flowing through the models are managed.

What role will AI play in risk mitigation?  

While there is a lot of excitement about the capabilities of generative AI, John’s belief is that the technologies for financial services will fall into two distinct categories:

1. Model accelerator:  AI can quickly bring in data sources to accelerate learning and expand modeling potential.
2. Accuracy validation: Banks will need to demonstrate to regulators that data has been compiled correctly and the insights from AI technologies will be needed to bring transparency to AI and ensure that AI output can be verified.

The result may be that a lot of spreadsheets are still utilized to move the workflow forward and cater to the data needs of regulators and auditors.

How do you win with AI? 

The most successful financial organizations recognize that risk management is an ongoing investment. No one ever says they have it 100% right. Market dynamics and the risk challenges facing the industry are continually changing. Those that are succeeding understand they always have to go to the next level to improve risk management, workflow automation, and regulatory compliance.

Beyond risk mitigation, there’s an incredible opportunity for AI to unlock the intellectual capital stuck in spreadsheets and other siloed risk management tools. Seasoned teams often create models that are inaccessible to other parts of the organization. Model management is not just about risk, but also opportunity management and harnessing intellectual property in a more scalable way. Coherent believes that the organizations that use technology and AI to connect spreadsheets and models to both manage risk and opportunity will be the industry winners.

Ready to improve your risk and opportunity management?  

Coherent brings a unique capability to spreadsheet management, which is a critical step in managing risk and unlocking intellectual property opportunities. By connecting spreadsheet logic in a transparent, controllable way, financial institutions can meet increasing regulatory demands and find new market opportunities.

To learn more about this topic, check out our CEO, John Brisco, was featured on the Bank Automation News podcast "The Buzz" discussing AI, or check out visit us at coherent.global to discover how you can turn your own spreadsheet models into enterprise-wide code in seconds.