In an era of escalating geopolitical tensions, it is critical for governments to prevent or tightly control foreign influence and interference in the industries that are strategically vital to a country’s sovereignty, stability, and resilience. Financial services and banking is at or near the top of these vital industries where geopolitical risk significantly increases bank systemic risk. There are new guidelines and regulations in place to prevent foreign influence and interference from a national security perspective. Government intervention through the use of ministerial and national security tools (divest orders, enhanced security conditions) is relatively rare. When a government intervenes in a board’s governance, it introduces a unique dynamic where the board must balance its traditional fiduciary duties with specific government objectives, significantly affecting the board’s independence, accountability, and decision-making processes. It may also put the shareholders’ interests at odds with the financial institution. These topics are discussed in this paper. It presents a case study of government intervention due to national security concerns, relying on publicly available information. The discussion is then extended to the board governance challenges and application of board governance principles in this peculiar situation. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
Between 2002 and 2025, 556 US insured depositories failed; more than 90 per cent held assets below US$10bn at the date of failure, locating the historical failure record in the small regional and community-bank population.1 The dominant screening tools, probability-of-default (PD) models, internal credit scores, and external ratings model screens2,3 are supervised classifiers fit on a curated set of accounting ratios and a fixed historical failure cohort, and they generalise poorly across distinct distress regimes (the 2008–2012 credit-loss wave, the 2013–2017 agriculture-and-energy stress wave, and the 2023 interest-rate-driven wave that culminated in the Silicon Valley Bank, Signature Bank, and First Republic Bank failures). This paper proposes a three-layer hybrid artificial intelligence framework. Layer 1 is an unsupervised, peer-relative anomaly engine over the Federal Financial Institutions Examination Council call report data.4 Layer 2 augments it with structured market signals for publicly listed bank holding companies and unstructured signals from regulatory disclosures, news, and social media. Layer 3 produces an analyst-facing triage brief. A population-scale proof of concept covers 4,978 institutions and 610,873 bank-quarter observations over Q1 2002–Q4 2025. On the 21 financial distress failures of 2016–2025 (five fraud-driven cases excluded), the Layer 1 engine flags 90 per cent at a top 10 per cent queue threshold with at least one year of advance warning, and 100 per cent at top 15 per cent. The 2023 Silicon Valley Bank cohort is detected at multiple pre-failure quarters by an engine trained only on data through Q4 2018, demonstrating regime portability without hindsight. The contribution is twofold: an unsupervised triage filter that narrows analyst attention to the right banks, and an analyst-facing screen that narrows attention, on each flagged bank, to the right questions.This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
Political instability and institutional fragility are increasingly recognised as systemic risk factors that undermine financial resilience in emerging markets and developing economies (EMDEs). This study examines how political and institutional conditions influence key dimensions of macro-financial vulnerability such as banking sector soundness, capital flow dynamics, and external balances, using a balanced sample of 36 EMDEs across six major regions over the period 2002–2023. Employing descriptive analysis, correlation matrices, and fixed-effects panel regressions with robust country-clustered standard errors, the study documents that weaker political stability and governance quality are systematically associated with elevated banking stress, constrained credit intermediation, heightened sensitivity of portfolio equity flows, and deteriorating external balances. Portfolio equity inflows respond more sharply to political shocks than foreign direct investment, and external debt accumulation and current account imbalances increase in politically fragile environments. Regional comparisons reveal substantial heterogeneity, with Sub-Saharan Africa and the Middle East and North Africa demonstrating the greatest vulnerability profiles, while East Asia and the Pacific exhibit stronger institutional buffers. These findings highlight the importance of incorporating political and institutional risk indicators into macro-prudential surveillance, stress testing, and capital flow risk management frameworks. The results inform policy makers, regulators, and risk managers on the channels through which governance fragility translates into financial instability, supporting enhanced banking resilience amid geopolitical and institutional uncertainty. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
This paper proposes a capital-based pricing methodology for banking-book loans that embeds Scope 3 emissions and the PCAF attribution standard into a practical transition risk framework for banks. Building on the Scope 3 capital design model of Trevisani et al. 1 , the paper adapts the Future Carbon Policy Exposure (FCPE), Climate-Policy-Risk-Weighted Assets (CPRWA) and Climate Policy Capital (CPC) concepts from trading-book derivatives to amortising loan exposures. It shows how a bank can compute a loan-level climate premium by applying CPC as an incremental capital charge to individual facilities and converting it into an interest rate spread via a simple pass-through rule. The framework incorporates financed-emissions attribution in line with PCAF guidelines 2,3 and is implemented in a self-contained R script that produces borrower-specific premia and portfolio views. The resulting tool allows risk managers to integrate climate transition risk into loan pricing and funds transfer pricing in a transparent, scenario-consistent and operational way, thereby helping institutions prepare their balance sheets for the impact of future climate policy.
Banks now operate in an environment in which many stresses interact rapidly and non-linearly. In such conditions, resilience cannot be assessed solely by capital strength or periodic stress testing. This paper argues that banking resilience should be understood hierarchically. The primary objective is outcome resilience: the ability of a bank to withstand a severe compound shock. Capability resilience — the ability to run, update, and govern integrated scenario analysis quickly — is a secondary objective. The paper develops a practical framework for both dimensions and uses a quantitative, stylised scenario to illustrate the approach. The framework also compares key prudential metrics before and after management actions. For European institutions, it can also support both short-term environmental stress testing and longer-term resilience analysis. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
This paper examines how the global banking sector preserves resilience under a dual technological shock: the criminal use of generative artificial intelligence (GenAI) and agentic AI1 in money laundering, fraud, and sanctions evasion, and the slow deployment of defensive AI/machine learning (ML) in anti-money laundering (AML)/anti-financial crime (AFC) programmes. It tests the hypothesis of a systemic ‘risk-adoption gap’ between the speed of threat evolution and the industrialisation of defensive AI. A qualitative triangulation integrates (1) the Association of Certified Anti-Money Laundering Specialists (ACAMS) Global AFC Threats Report 2025;2 (2) quantitative evidence from ‘Global AML Research: The Road to Integration’ (SAS‒ACAMS‒KPMG, 2024); (3) Financial Action Task Force standards on digital transformation and virtual assets; and (4) Europol and Cybercrime Trends 2025 analyses on AI-enabled cybercrime. Cross-source patterns inform policy implications. The study finds that only 18 per cent of institutions have fully operational AI/ML in AML/counter-terrorism financing, while 40 per cent lack any adoption plan, despite AI-driven threats rated high/very high. Legacy IT and data constraints and a talent gap in data/ML/explainable AI (XAI) are the main internal barriers. Asia combines high AI use with fragile infrastructures, whereas the US/Oceania show delays linked to regulation and core-system complexity. Offensively, GenAI amplifies authorised push payment and document fraud, synthetic identities and multi-channel phishing, eroding rule-based controls. Non-homogeneous data sources limit statistical generalisation but enable framing AFC 5.0 as asymmetric warfare, where AI powers both crime and defence. The paper formalises the risk-adoption gap as a driver of systemic stability, aligns AI-enabled threats, banks’ AI/ML maturity and regulation, and outlines a resilience architecture grounded in data, governance, and talent. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
This opinion piece examines the regulatory divergence in the European sustainability agenda as of late 2025 and its implications for environmental, social, and governance (ESG) risk management in the banking sector. While the European Union’s Omnibus package reduces the administrative burden on the real economy, the new European Banking Authority (EBA) guidelines mandate a significant intensification of risk oversight for the financial sector. The paper analyses the ‘horizon mismatch’ between short-term capital planning and long-term climate and environmental risks, evaluating the role of new instruments such as CRD-based transition plans and resilience analysis. This demonstrates that the EBA’s move towards forward-looking methodologies represents a continued shift away from approaches that rely solely on retrospective data. The analysis highlights that the EBA already acknowledges the necessity of expert judgment and institutional discretion, particularly by allowing institutions to define their own most likely scenario as a reference within resilience analysis, even as it avoids the explicit term ‘subjectivity’ in the regulatory vocabulary. The author concludes that effective ESG risk management must transcend the mere expansion of data lakes. Instead, it requires a robust framework of epistemic governance, a system designed to manage the generation, validation, and communication of knowledge under deep uncertainty, effectively transforming ‘subjectivity’ into a structured and transparent institutional process. Rather than relying on closing data gaps through technical granularity alone, the paper emphasises the need for a risk culture rooted in intellectual humility and the systematic integration of expert-based insights to ensure the long-term resilience of the financial system. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
Conventional country-risk models consolidate many threats into a single score, often overlooking the way political, economic and security pressures interact. This paper offers an alternative: the indicator-based peril framework. It separates exposure into ten clear perils, such as non-payment, currency inconvertibility and contract alteration, and tracks each one with a focused set of public data and expert insight. The methodology supports real-time scoring, escalation logic and institutional alignment, addressing forecasting failures observed in legacy models. Results are expressed on a five-level scale that shows where risk is low, rising or acute. A close examination of Egypt’s 2023–24 financial crisis reveals how the approach highlights warning signs that standard ratings overlooked. By explaining which peril is worsening and why, the framework enables decision makers across sectors to act more promptly and tailor responses to their own risk priorities. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
This paper investigates the challenges in implementing enterprise risk management (ERM) in the Indian insurance sector. This is the first such study within the Indian insurance market, which is essential for risk management professionals, policy makers and regulators to understand these gaps and work towards addressing them. The Government of India has recently opened the Indian insurance sector for 100 per cent foreign direct investment, and this paper will be helpful for new investors in the Indian market. The research adopts a semi-structured interview-based approach to address the research problem under investigation. The respondents are primarily senior risk professionals in the Indian insurance industry. The paper identifies an inadequate understanding of the roles and responsibilities of the first and second line of defence. There are challenges in the quantification of non-financial risk as well as the availability of data for this purpose. There is inadequate risk training and a lack of standard risk language among the insurance companies. The authors recommend (based on the results of this paper) that the regulator and the Board of Insurance Companies should work together to address these gaps and make the Indian insurance sector more robust and resilient to manage future emerging risks. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
A stable banking sector is an essential part of the modern-day economy and higher credit risk is a major source of bank instability. Therefore, many research studies have been conducted to identify the determinants of credit risk in the past three decades. The purpose of this paper is to conduct a systematic literature review of the prior studies on the determinants of credit risk published from 1988 to 2022 in peer-reviewed journals. The motivations of this study are to draw a more comprehensive conceptual framework of credit risk determinants, evaluate the policy responses to recent banking crises and propose future research avenues. The findings of 452 relevant prior studies are divided into three broad categories of credit risk determinants. The three broad categories are macro, bank-specific and sector-specific variables which are then divided into six sub-categories and further divided into 43 credit risk determinations. The results reveal that more specific, multidiscipline and multicounty research studies may help to further understand this topic to improve stability in the banking sector. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
This paper proposes a robust quantitative method to measure the magnitude of differences in credit quality among multilateral lending institutions (MLIs). Leveraging multiple discriminant analysis (MDA) and principal component analysis (PCA), we transform ordinal credit rating scales, traditionally provided by international credit rating agencies (CRAs), into precise ratio-level measurements. The developed methodology directly addresses a critical limitation of ordinal rating systems — their inability to quantify exact differences between closely rated institutions. For risk managers, accurately quantifying such differences is crucial, as credit quality nuances significantly affect the pricing of derivatives, collateral agreements, the calculation of credit valuation adjustment (CVA)-related capital charges and, more broadly, the assessment of institutional capital requirements. In the absence of an objective and fundamentals-driven measure of credit quality differentials, risk managers are often compelled to rely on market-driven indicators — such as credit default swap (CDS) spreads or bond yields — which, while widely used, are inherently prone to volatility, short-term noise and potential distortion. Such reliance can lead to misinterpretation of underlying credit fundamentals, particularly in periods of market stress, where signals may be driven more by sentiment than by structural creditworthiness. Given the increasing adoption and strategic importance of credit risk transfer instruments by MLIs — mainly to enhance financial resilience, manage single name concentration risks and expand lending capacity — a rigorous methodology to address credit risk mismatches among participating institutions is essential. Furthermore, our methodology has broader implications beyond quantifying credit quality differentials. By providing a numerical representation of credit opinions, as conveyed through agency-assigned ratings, the framework offers insights into the behavioural patterns of rating agencies. For example, a larger numerical distance between classifications may signal a more conservative or deliberate approach to rating adjustments by a given agency. More broadly, the proposed framework has the potential to inform revisions to existing rating methodologies employed by the leading CRAs (eg S&P, Moody’s, Fitch). By more accurately capturing subtle differences in credit quality, it could contribute to enhanced transparency, comparability and accuracy in credit assessments. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
The adoption of Capital Requirements Regulation (CRR) III in 2024 introduced a new regulatory architecture for credit valuation adjustment (CVA), requiring financial institutions to align capital buffers with evolving counterparty credit risk. This paper provides a comparative analysis of the standardised (SA-CVA), basic (BA-CVA) and simplified (SI-CVA) approaches, incorporating detailed numerical examples and explicit mapping to CRR III provisions. By tracing BA-CVA’s theoretical lineage to the Capital Asset Pricing Model (CAPM) and Modern Portfolio Theory (MPT), the study connects supervisory regulation with foundational financial theory. The findings highlight that while SA-CVA offers risk sensitivity and potential capital relief, BA-CVA and SI-CVA serve as accessible but conservative alternatives for less complex institutions. A dual-layered CVA strategy combining Pillar 1 minimums with internal Pillar 2 overlays is recommended to manage residual risks and wrong-way exposures effectively. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
Incident management — the response to an unplanned interruption or event that potentially harms assets or compromises operations — is the daily business of IT professionals and cyber defence specialists. Guidance on how to implement incident management can be found in international standards; however, the process does not receive sufficient attention from the rest of the organisation. Driven by the digitalisation of the financial sector and the growing threat of cyberattacks, global supervisory authorities have worked over the past five years to strengthen operational resilience. Incident management has been identified as one of the core elements, supported by thorough organisational measures, to provide more transparency, awareness and management attention, but even government influence failed to make this a prominent topic in boardrooms. The threat became a reality, however, with the CrowdStrike outage, the largest information and communication technology (ICT) incident in history, resulting in an estimated financial damage of US$10bn. Since the focus on operational resilience has shifted to ICT, the world has changed dramatically: geopolitical conflicts, extreme weather events and energy insecurity have evolved fast and will challenge organisations in parallel to ICT failures and cyberattacks. This requires a different approach to incident management with more comprehensive oversight, stronger collaboration and integration. As threats are increasingly interconnected, extremely fast coordination and synchronised activation will be required. This paper discusses the building blocks of an integrated incident management system and how operational and strategic elements are related. The paper also reviews European regulations for operational resilience (Digital Operational Resilience Act [DORA]) in the context of a broader implementation approach and how this connects with enterprise risk management (ERM). This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
This paper examines the Financial Accounting Standards Board’s (FASB) recent changes to define crypto assets, focusing on why non-fungible tokens (NFTs), utility tokens and asset-backed tokens (ABTs) were not included. By examining the core features of these excluded assets, the research unpacks the reasoning behind their omission. The absence of these assets from the standard definition creates challenges for financial institutions. Without clear accounting guidance, companies face uncertainty in valuation, liquidity risk and difficulty meeting compliance requirements. Risk managers are left guessing how to assess and report these holdings. This has an impact on everything from disclosures to capital planning. The findings highlight a critical need for accounting standards that keep pace with the complexity and growth of digital assets. Institutions may misprice assets, misjudge exposure and fall short of regulatory expectations without up-to-date guidance. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
Academic interest in understanding the role of financial technology (FinTech) in financial institutions has grown significantly in recent years. FinTech is defined as the use of innovative digital tools and platforms — such as mobile applications, blockchain, artificial intelligence (AI), cloud computing and application programming interfaces — to improve, automate and transform the delivery of financial services and risk management processes. Many studies have explored FinTech adoption, yet few have examined its integration with risk management and regulatory compliance. Therefore, this study sheds light on the literature trends associated with FinTech adoption and operational risk management using a systematic literature review (SLR) and the Theory, Context, Characteristics and Methods (TCCM) framework. The analysis reviews the habits and patterns of FinTech adoption across financial institutions, emphasising the regulatory landscape and cyber security challenges. With the SLR approach, 44 articles published from 2002 to 2023 were analysed. The findings indicate a strong nexus between FinTech adoption, operational efficiency and regulatory compliance, showing an increasing interest among scholars and practitioners. A comprehensive review of dominant theories (eg technology acceptance model and diffusion of innovations), specific contexts (eg banking and financial service providers), characteristics (eg independent, dependent, moderating and mediating variables) and methods (eg research approaches and analytical tools) is provided. This review is the first to critically assess the underexplored intersection between FinTech adoption and regulatory compliance. The findings may help policy makers, banking service providers and academics understand the necessity of balancing FinTech innovation with risk management. The future research agenda outlined in this study will facilitate researchers in exploring new insights within the domain of FinTech adoption and risk mitigation. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.
