Tony Hughes

London

Tony Hughes. Columnist for the Global Association of Risk Professionals (GARP) and Managing Director at Moody's Analytics.

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Articles

The Place for Generative AI in Risk Management

1 month ago | garp.org | Tony Hughes

The use of generative AI in banking is now pretty well established. It’s currently used for a variety of tasks, and its strengths and weaknesses are becoming more obvious. If the technology was an employee, given its highly unusual set of skills, its probationary period would have ended and its future would be considered bright by most senior managers. Tony HughesBut the new employee has not yet shown that it is completely trustworthy.
The Ultimate Model Risk: Lawsuit Could Prompt Big Changes to the Federal Reserve’s Stress Test

2 months ago | garp.org | Tony Hughes

The Federal Reserve is now being sued, by the American Banking Association and other lobby groups, about the opaqueness and fairness of its stress testing framework. Though the central bank has heard complaints about CCAR, its annual capital adequacy stress test, in the past, it’s possible the lawsuit could yield significant stress testing changes. This is obviously important news for credit risk practitioners.
The Fallout from Political Elections for Central Banks

Nov 22, 2024 | garp.org | Tony Hughes

The recent election of scandal-scarred Donald Trump to a second term as U.S. president may appear to be an anomaly – but it is consistent with a well-established global trend. Since the pandemic, incumbents in western democracies have lost 40 of 54 elections. These losses have occurred irrespective of tenure or whether the incumbent was on the left or right on the political spectrum. Tony HughesHow might all this political upheaval impact central banks?
The Art of Buying and Selling Risk Analytics

Oct 11, 2024 | garp.org | Tony Hughes

Gathering data and modeling is – by a considerable margin – the best way to optimize portfolio construction and management. But because modeling talent is spread thin and wide, it would be impractical for even a large bank to have every modeler it needs or wants on its payroll. This is one reason why large and small analytics companies have a chance to provide their services to major financial corporations – and to earn tidy profits as a result.
Generative AI Has Made Banking Cheaper - But Has It Made It Better?

Sep 27, 2024 | garp.org | Tony Hughes

Since its origins in the 1950s, artificial intelligence (AI) has been marked by periods of intense optimism, interlaced with eras of rank pessimism. The past decade, which saw the rise of computers capable of understanding and generating natural language, has perhaps been the most consequential boom period thus far. But the staying power of generative AI is now a hot question, with many suggesting that the advances have been far less impactful than initially promised.
How Would You Like Your Model-Based Financial Disclosures?

Aug 16, 2024 | garp.org | Tony Hughes

Model-based risk assessments are at the heart of several current industry initiatives that have been adopted, ostensibly, to improve the quality of financial disclosures. CECL and – which use projections of expected loss to determine loan-loss reserves – are two of the most obvious examples. But what do investors really want from such model-driven disclosures? Tony HughesThey don’t want all the trade secrets, because that would aid competitors and erode returns.
The Art of Distinguishing Real Risks from Pretenders

Jul 19, 2024 | garp.org | Tony Hughes

These days, financial institutions and their risk managers seem to be more focused on geopolitical risk than on data-driven credit risk issues. It’s certainly fair to question, though, whether this is a worthy tradeoff. Are geopolitical dangers really a big threat to banks or should they be more concerned with credit-fueled asset bubbles, regulatory limitations, and the excessive and foolish risk taking connected to exotic financial instruments?
The Limitations of Models and the Need for Simpler Scenarios

Jun 14, 2024 | garp.org | Tony Hughes

The range of potential threats faced by banks today is limitless, and scenarios are therefore becoming more and more complex. But is this a good trend? When we take a closer look at the evolution of scenario analysis and models, and when we consider the current flaws in modeling and validation, there’s a strong argument that we should actually be simplifying scenarios. In the early days of stress testing, the scenarios represented a repeat performance of the Great Recession of 2008/09.
The Rise of Conjectural Risk Management

May 17, 2024 | garp.org | Tony Hughes

Scenario analysis has taken center stage in the 15 years since the global financial crisis (GFC). It’s now not only a core component of forecasting for expected credit losses but is also at the heart of regulatory and internal bank stress tests across the globe. Indeed, I would argue that the most consequential change in the practice of risk management over the past decade-and-a-half has been the rise of scenario-based stress testing.
A Modest Suggestion to Improve Stress Testing

Apr 26, 2024 | garp.org | Tony Hughes

Over the last 15 years, every stress testing issue that has cropped up has prompted precisely the same response from regulators. Scenario analysis is apparently the right tool for the job – from climate risk to concerns about bank liquidity, from questions about capital adequacy to the calculation of loan loss reserves. However, under the current setup, the validation of scenarios is next to impossible.