Dr. Jeffrey Edwards Advocates for Advanced Risk Assessment Models in Banking
In a recent episode of the Disruption Interruption Podcast, Dr. Jeffrey Edwards discusses how traditional two-factor risk matrices used by banks are outdated and fail to capture emerging financial threats effectively. He highlights that these models do not account for compounding risks or predictability, which can lead to systemic failures as seen in 2023 with Silicon Valley Bank, Signature Bank, and First Republic Bank. Edwards' company, FFERM Technologies, proposes a four-factor risk model incorporating likelihood, impact, predictability, and compounding. This approach aims to provide more accurate insights into how risks behave over time rather than reducing them to static scores. The methodology is designed to integrate with existing processes while offering deeper visibility into potential crises. The Federal Reserve reported 31 unaddressed supervisory warnings at the time of these bank failures, underscoring a critical gap in current risk management practices.
Topics: banking risk FFERM Technologies likelihood-and-impact matrix systemic failure