"This paper examines the major causes of #svbcollapse collapse in March 2023 from a #regulatory and #riskmanagement perspective... Our analysis reveals major weaknesses in SVB’s risk management practice but also underlines weaknesses in the US regulatory regime [compared to #baseliii] reaching from reporting exemptions for small banks in the domain of liquidity and interest rate risks, non-sufficiently sensitive monitoring ratios, and misalignments between #accounting and risk management principles hindering effective oversight."
This paper discusses the limitations of traditional #asset#liability#management (#alm) techniques in #riskmanagement, particularly in high-interest rate environments, and proposes the application of #deep#reinforcement#learning (#drl) to overcome these limitations. The paper defines the components of #reinforcementlearning (#rl) that can be optimized for ALM, including the RL Agent, Environment, Actions, States, and Reward Functions. The study shows that implementing DRL provides a superior approach compared to traditional ALM, as it allows for increased #automation, flexibility, and multi-objective #optimization in ALM.
"… we find that the #uncertainty premium is negatively correlated with #riskaversion at all sizes and #probabilities of #risks. This leads to a selection effect: individuals who purchase #insurance are not necessarily the most risk averse. We show that the resulting #misallocation of insurance leads to large #welfare#losses."
This paper explores the #reputationalrisk associated with #esg investments and provides a formal theoretical valuation system for ESG reputation. The authors argue that ESG criteria adoption has multiple positive dimensions and outcomes, but the analysis of the #risks related to #sustainability is uncommon. They model ESG reputational risk using paradigms of #behaviouralfinance, defining it by subjective probabilities framed in a #probability function based on potential trustees' preferences. The paper highlights the need for accurate evaluation of reputational risks related to ESG investments by firms and other institutions, including #insurance companies and #pensionfunds.
This paper examines the Bowley solution in the context of #insurance contracts using the expected utility framework. Specifically, the paper analyzes a sequential game between a #policyholder and an #insurer, in which the policyholder selects the optimal #indemnity function and the insurer adjusts the pricing kernel to maximize expected #netprofit. The paper finds that the optimal safety loading factor increases with the policyholder's #riskaversion level and the #probability of zero loss. However, the paper also shows that the Bowley solution is #pareto dominated, meaning that both parties' interests can be further improved.
This commentary discusses the role of #accounting in addressing #climaterisk and promoting #sustainabilityreporting. #regulators are pushing for climate risk #disclosure standards, focusing on #non_financial and forward-looking information.
This paper discusses the role of public policy in #regulating the development of #ai, #ml, and #robotics, and the potential #risks of different approaches to #governance. It explores the tension between precautionary principles that prioritize risk avoidance and permissionless innovation that encourages entrepreneurship, and advocates for a more flexible, #bottomup governance approach that can address risks without hindering innovation.
In November 2022, new #legislation was enacted to strengthen penalties following large-scale #databreaches. However, there are concerns that current reform proposals for the #australian#privacyact do not distinguish between useful and essential changes. This #submission identifies the most important proposed changes, including expanding the definition of #personalinformation, removing exemptions for small business and strengthening #individualrights. It also advocates for the prohibition of unfair and unreasonable processing activities and for the right to opt-out of #directmarketing.
While #financialrisks, #politicalrisks, #compliancerisks, and #cyberrisks are more easily quantifiable, #esgrisk presents a challenge for boards to identify, assess, and develop plans to its #riskmitigation. Using #nestlé USA as a case study, the article highlights how #esg#risks can migrate across different pillars: what initially appeared as #supplychainrisk moved across pillars into #litigation and #businessrisk before settling as ongoing ESG risk proper.
This article discusses the need for #regulation of #robots and #ai in #europe, focusing on the issue of #civil #liability. Despite multiple attempts to harmonize #eu#tort #law, only the liability of producers for defective products has been successfully harmonized so far. The #aiact, published by the #europeancommission in 2021, aims to #regulate AI at the European level by classifying #smartrobots as "high risk systems", but does not address liability rules. This article explores liability issues related to AI and robots, particularly when using #deeplearning #machinelearning techniques that challenge the traditional liability paradigm.