Contemporary Risk Management Challenges and the Global Regulatory Landscape

Since the Global Financial Crisis (GFC) of 2008 the global financial system has been fragile.  High levels of debt, inflation, rising tensions between countries, continued unregulated parts of the financial system, and vulnerable trading clearing houses are major risks for many countries. Many experts and news outlets are saying that the world might already be heading towards another financial crisis.

Besides these shocks, the rules meant to keep the financial system safe are also facing challenges. Banks are dealing with complicated rules on how to manage risk. Not all countries follow the same rules, nor do they implement them at the same time, leading to fragmentation and arbitrage opportunities. Moreover, many rules have clear unintended consequences leading to greater risks. While mandatory central clearing of interest rate swaps has reduced counterparty risk, it has inadvertently increased liquidity and concentration risks at the CCP and among its Clearing Members.

Stress tests, which are supposed to show how banks would handle a crisis, have also come under criticism.  Even the biggest banks, which ought to be the safest, have intricate connections with the less-regulated parts of the financial system e.g. bank loans to non-bank financial institutions (NBFIs) have risen from $600bn in end-2019 to greater than one trillion dollar at the start of 2025, as businesses have turned to private credit for funding. It is difficult to predict how risky these loans are.

A series of bank failures since 2008, with a group of US regional lenders collapsing, e.g., SVB, Signature Bank, etc., and the Swiss government-engineered takeover by UBS of the ailing Credit Suisse across the Atlantic indicate that a full-blown financial crisis is always lurking around the corner. Geopolitical uncertainty is complicating matters further.

This programme provides an overview of the major post-crisis regulations global banks are now required to comply with. While some have been rewritten (e.g., trade reporting), others are being expanded (e.g., mandatory clearing) or strengthened and debated (e.g., Basel-III in the US). Almost all global banks in India (via their GCCs) and abroad have sizeable teams assigned to these initiatives, working as consultants on a project trying to meet a strict deadline or supporting the Line function as a Subject Matter Expert (SME) for ongoing compliance.