Welcome to RiskTao Transforming Risk Into Reward
Phone: (951) 370-0422/ Email: Craigs@risktao.com
Phone: (951) 370-0422/ Email: Craigs@risktao.com
RiskTao LLC is a risk management training & advisory company founded in 2009. We work with organizations of all sizes to teach effective risk management techniques and help you define risk program roadmaps, strategic goals, risk management frameworks that align risk and costs.
RiskTao's approach is to create customized risk management training programs that teach all levels of risk management and bring all stakeholders together around a common vision. We also offer risk advisory services to assist clients with practical & effective implementation services.
RiskTao uses a unique and highly effective costs reduction approach to conduct business. We embrace a "train the trainer " program which cultivates your "in-house talent" and creates a high Return On Investment (ROI).
RiskTao advises companies to leverage risk management techniques to grow their business in a responsible way. Thus, building sustainable and long term profitability. We bring years of experience to all aspects of risk and business management.
Successfully providing transformation services in the following areas:
We believe in giving back to the community and offer introductory and advanced risk management classes to high school & college students. We discuss leveraging risk management to achieve their specific goals and risk management career aspirations.
We have developed a strong relationship and conducted classes with the Madison Square Boys & Girls Club of NY (http://www.madisonsquare.org)
Please contact us at craigs@risktao.com if you are interested in exploring risk management classes for interested students.
Smart achievable goals drive behavior, teamwork and success. Working together and traveling in the same direction is essential to success.
RiskTao LLC created an approach that facilitates alignment to goals and creates a "shared interest." This approach is based on the direction you can take a business. They are as follows:
Each primary goal above has strategies that will empower you to achieve your goal.
Each strategy will have its own set of risks, controls, remedies and measurements that require identification and on-going focus.
We Implement ERM frameworks with a focus on convergence across the 3 Lines of Defense. This keeps everyone heading in the same direction and is the catalyst to make risk management a key focus and aligned to goals and risk appetite.
People are an organization's greatest asset. RiskTao's approach is to develop the organization's risk skills to a point of making it "second nature." This serves to benefit both the organization and the individual. We use a goal based approach to create "your pathway to excellence."
1. CeFPro’s forthcoming virtual Non-Financial Risk Leaders Summit, taking place June 15-16.
2. CeFPro forthcoming virtual Risk Americas May 25th - 26th 2021
3.CeFPro's Virtual Fintech Leaders 2021 Convention February, 2-3.
RiskTao, LLC. February, 2021–Risk Events Newsletter by Eric Spielmann, Risk Analyst (erics@risktao.com)
Risk factors come in many shapes and forms. Some are easy to catch and prevent losses, others are inevitable. To effectively manage your risk its critical to create “organizational awareness” that educates decision makers to proactively manage their risk and maximize profits.
At RiskTao, LLC we assist companies to achieve their goals by creating “pathways to excellence” which detail the strategy to achieve goals within risk appetite.
Below is a recap of selected February 2021 risk events in the news that should be considered and discussed at your institution. These events should help raise the question “could it happen here and how would it impact us if it did.” These events are can improve scenario planning which has been proven to be an effective tool to minimize risk and maximize profits.
As the great UCLA basketball coach John Wooden once said: “Failing to prepare, is preparing to fail”.
Please Visit our website at: https://www.risktao.com
Cyber Risk
Massive Global Hack Breaches Microsoft Business Accounts By William Turtonand Jordan Robertson March 6, 2021, 4:43 PM PST Updated on March 7, 2021, 11:14 AM PST
A sophisticated attack on Microsoft Corp.’s widely used business email software is morphing into a global cybersecurity crisis, as hackers race to infect as many victims as possible before companies can secure their computer systems.
The attack, which Microsoft has said started with a Chinese government-backed hacking group, has so far claimed at least 60,000 known victims globally, according to a former senior U.S. official with knowledge of the investigation. Many of them appear to be small or medium-sized businesses caught in a wide net the attackers cast as Microsoft worked to shut down the hack.
Click the Link to Read More: https://www.bloomberg.com/news/articles/2021-03-07/hackers-breach-thousands-of-microsoft-customers-around-the-world?sref=1w6rJJ1O
IRS issues urgent EFIN scam alert to tax professionals By: Security Magazine on February 17th, 2021
IRS warns taxpayers and professionals about a scam email that is fraud. Thieves claiming to be part of the IRS are stealing taxpayer personal information in order to steam their money. The latest scheme arrived just before the recent start of the tax season. The thieves try to steal the taxpayer data and the tax professional identities in order to file for fraud returns that allow them to collect on the refunds. These scams are known as “Phishing” where the thieves trick tax professionals into disclosing sensitive information about their clients. Tax professionals must stay focused and aware because the scammers are active and looking to make a profit anywhere, they can.
Click the Link to Read More: https://www.securitymagazine.com/articles/94626-irs-issues-urgent-efin-scam-alert-to-tax-professionals
Vetting Venders’ Cybersecurity By: Madison Ller on January 26th, 2021
LMG Security’s Madison Iler discusses how to structure a vendor risk management program (and where to spend your time) and shares common missteps that can reduce program effectiveness.
As evidenced by the recent far-reaching SolarWinds breach, supply chain attacks represent one of the top cybersecurity risks for organizations. In today’s digital world, business associates often handle your organization’s (and clients’) sensitive data, so it’s important to evaluate the risk they pose and ensure they have the proper cybersecurity controls. This article covers the why and how of evaluating the cybersecurity programs of your vendors and business associates to help keep your business safe and meet compliance goals.
A number of high-profile cybersecurity incidents in recent years have highlighted the risks that vendors can pose to an organization’s data and systems. Well-known companies such as Target, Netflix, and Ticketmaster have been affected and analyzed extensively in the media, but many smaller companies have also had vendor-related incidents and data breaches. All of these attacks pale alongside the recent SolarWinds attack that opened up back doors and exposed sensitive data at numerous government agencies and high-profile organizations.
Click the Link to Read More: https://www.corporatecomplianceinsights.com/vetting-vendors-cybersecurity/
Disaster Recovery
How the Texas power grid failed and what could stop it from happening again By: Pippa Stevens on February 18th, 2021
The Lone Star State, Texas, is experiencing the worst blackout in decades due to the recent snowstorm. Why is Texas so ill equipped to handle such a storm? All the power sources were compromised: Coal, Natural Gas, Crude, Wind and Solar power all decreased in energy production. All 254 counties in Texas were placed under weather advisory warnings and usually if a cold front hits one or two areas, the production of energy moves somewhere else. That was not possible this time because of the icy roads that impleaded service to equipment. Overall, Texas has its own electrical grid that is deregulated.
Click the Link to Read More: https://www.cnbc.com/2021/02/17/how-the-texas-power-grid-failed-and-what-could-stop-it-from-happening-again.html
Regulatory Compliance
FDIC fines Apple Bank $12.5M for AML compliance failures By: Jacklyn Jaeger on February 2nd, 2021
The FDIC “order to pay” against the New York-based financial institution, issued Dec. 21, 2020, was made public Jan. 29. According to the order, Apple Bank violated the BSA from April 2014 through September 2018 and further failed to comply “in a timely manner” with compliance requirements outlined in a December 2015 consent order.
The 2015 consent order cryptically describes how the FDIC ordered the bank to enhance its BSA anti-money laundering compliance program. Under Section 326.8 of the BSA, compliance programs must at a minimum provide for a system of internal controls to assure ongoing compliance; independent testing for compliance to be conducted by institution personnel or by an outside party; training for appropriate personnel; and designate an individual or individuals responsible for coordinating and monitoring day-to-day compliance.The FDIC said the $12.5 million penalty was “appropriate” after considering the consent agreement, the bank’s “good faith,” and the “gravity of the violations” and “history of previous violations by the bank.” Asked for more details, an FDIC spokesperson said the agency does not comment on individual enforcement actions.
Click the Link to Read More: https://www.complianceweek.com/regulatory-enforcement/fdic-fines-apple-bank-125m-for-aml-compliance-failures/30002.article
To resolve an investigation into a foreign bribery scheme, the German lender entered a deferred prosecution agreement — a common way for big banks to avoid criminal charges.
By Spencer Woodman January 12, 2021
Deutsche Bank has agreed to pay over $130 million to resolve allegations that the German bank had devised a “scheme to conceal corrupt payments and bribes” to bolster its business around the world, U.S. prosecutors announced late last week.
Beginning in 2009, Deutsche Bank embarked on a seven-year course of misconduct, prosecutors said, funneling more than a million dollars in outright bribes and millions more in related expenses to so-called “business development consultants” around the world. Prosecutors say the German bank misrepresented these expenses in its recordkeeping.
The scheme included prominent portions of Deutsche Bank’s executive leadership, who “knowingly and willfully conspired” to hide and falsify payments to crooked consultants, prosecutors said. The U.S. Foreign Corrupt Practices Act forbids companies operating in the U.S. from paying bribes abroad. Deutsche Bank’s violations of these laws spanned Saudi Arabia, Abu Dhabi, Italy and China, according to prosecutors.
Last year, the International Consortium of Investigative Journalists’ FinCEN Files investigation found that Deutsche Bank helped move hundreds of millions of dollars for a Ukrainian oligarch now accused of defrauding his country’s largest bank. The investigation, conducted in collaboration with BuzzFeed News and more than 100 other media partners around the world, revealed that Deutsche Bank was one of a number of global banks that kept profiting from powerful and dangerous players even after U.S. authorities issued fines for failures to stem flows of dirty money.
Click the Link to Read More: https://www.icij.org/investigations/fincen-files/deutsche-bank-agrees-to-pay-130-million-in-latest-major-us-penalty/
Former Vatican Banker Convicted of Money Laundering and Embezzlement By: Elisabetta Povoledo on January 21st, 2021
ROME — A Vatican court on Thursday convicted a former senior official at the Vatican bank and his lawyer of embezzlement and money laundering, sending a strong signal that the church was determined to get its financial house in order. The defendants — Angelo Caloia, the president of the Vatican bank for two decades, and his onetime lawyer Gabriele Liuzzo — had been accused of embezzling millions of euros through shady real estate deals between 2002 and 2007.
Sentenced to eight years and 11 months in prison apiece, the defendants were ordered to pay the Vatican bank damages of more than €20 million, or $24 million.
The court also ordered “the confiscation of sums totaling approximately 38 million euros” from the defendants, the Vatican said in a statement accompanying the sentence, which the press office of the Holy See released shortly after the court ruling. The two were fined €12,500 each as well.
Click the Link to Read More:https://www.nytimes.com/2021/01/21/world/europe/vatican-bank-embezzlement.html?searchResultPosition=1
Fraud
Liquor Entrepreneur Arrested For Defrauding Investors By: The United States Attorney’s Office on February 17th, 2021
Joseph Cimino the founder of an Orange County based tequila company. He was arrested and charged with wire fraud due to his fraudulent solicitation of investments for the company. Joseph allegedly raised nearly 1 Million in investor funds for his startup company. He lied about the finances and spent a large portion of the investors’ money for his own lifestyle. From 2014-2018 Joseph raised about 935K from around 25 investors. CIMINO, age 56, of Warwick, New York, is charged with one count of securities fraud and one count of wire fraud. Each charge carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
Ms. Strauss praised the investigative work of the FBI Hudson Valley White Collar Crime Task Force and Orange County Sheriff’s Office. Ms. Strauss also thanked the Securities & Exchange Commission for its assistance in the investigation.
Click the Link to Read More: https://www.justice.gov/usao-sdny/pr/liquor-entrepreneur-arrested-defrauding-investors
FBI, Helena Police Department Warn of Increase in Business Email Scams By: FBI Salt Lake City Press Office on February 18th, 2021
Helena Police and FBI warn public about BEC (business email compromise) schemes. Mainly targeting the title companies, in one recent case a local victim received an email from a title company with directions on how to wire his payment. The victim did not realize it was a scam until the money was sent losing tens of thousands of dollars. BEC scams are growing and cost victims hundreds of millions of dollars each year. In 2019, 55 people living in Montana lost around 2.5 million dollars.
Click the Link to Read More: https://www.fbi.gov/contact-us/field-offices/saltlakecity/news/press-releases/fbi-helena-police-department-warn-of-increase-in-business-email-scams
Health & Safety
A Tense Lunar New Year for the Bay Area After Attacks on Asian-Americans By: Jill Cowan on February 12th, 2021
The use of discrimination is nothing new: across all nationalities one would find racial slurs, inequality and judgement. In January, the Bay Area showed footage of older Asian men being pushed down due to their race. Anti-Asian violence and harassment community leads say the spurred acts of hate was the aftermath of former President Trump calling the Coronavirus “the Chine virus” or “Kung Flu.” Carl Chan, president of the Oakland Chinatown Chamber of Commerce, tallied more than 20 assaults over the past two weeks.
Click the Link to Read More: https://www.nytimes.com/2021/02/12/us/asian-american-racism.html
Technology Executive Apologizes After Dozens of Event Attendees Contract Covid 19 By: Jacey Fortin on February 16th, 2021
In, California a technology executive apologizes for hosting a conference in Culver City. After the conference two dozen attendees and staff members tested positive for Covid 19. Peter Diamandis, the executive, was among those who contracted Covid 19. The event had a total of about 80 attendees, panelist and support staff. In a blog, Mr. Diamandis said he was “deeply sorry”. He also added safety protocols for the event, that included mandatory covid test, where no one showed positive results at that time. Two days after the conference, he said, a member of his staff tested positive and urged all attendees to isolate and get tested again.
Click the Link to Read More: https://www.nytimes.com/2021/02/16/us/peter-diamandis-covid-ca.html?searchResultPosition=10
Business Products & Practices
Tesla Will Recall 135,000 Cars for Faulty Touch Screens By: Niraj Chokshi on February 2nd, 2021
Tesla recalled nearly 135,000 cars after a federal regulator raised concerns about problems with the touch-screen displays. At first the company disagreed with a request made in January by the National Highway Traffic Safety Administration. The recall is for Model S vehicles from 2012-2018 and Model X from 2016- 2018. Those are the main models Tesla sells for $100,000 or more. The cause for the issue is a memory chip in the center display of the vehicles. Drivers use this to control many aspects of the car: such as turn signals and back up cameras.
Click the Link to Read More: https://www.nytimes.com/2021/02/02/business/tesla-recall.html?searchResultPosition=1
Market Risk
GameStop Hearing Centers Around Robinhood By: New York Times on February 23rd, 2021
The chief executive of the online brokerage firm Robinhood, Vlad Tenev, faced anger from members of Congress from the opening moments of the House Financial Services Committee hearing on GameStop Mr. Tenev apologized to his users for stopping certain customer trading during the peak of the frenzy. But Mr. Tenev was insistent that Robinhood did nothing wrong and did not privilege powerful business partners at the expense of small investors, as some critics have suggested. “We don’t answer to hedge funds,” Mr. Tenev said. “We serve the millions of small investors who use our platform every day to invest,” Mr. Tenev said it was forced to stop certain trading because its business partners, the clearing houses that perform trades on Robinhood’s behalf, significantly increased the requirements for the amount of money Robinhood had to park with them as collateral.
Click the Link to Read More: https://www.nytimes.com/live/2021/02/18/business/stock-market-today
Goldman says the stock market is undergoing its biggest short squeeze in 25 years - and that has hedge funds dumping stock exposure at the fastest rate since 2009 By: Harry Robertson on February 1st, 2021
The US stock market experienced its biggest short squeeze in 25 years over the past three months, according to Goldman Sachs. It all came to a head in the past week amid the GameStop madness that forced hedge funds to dump stock holdings at the fastest rate since 2009, the firm found. GameStop shares spiked by 400% last week - and by 1,625% in all of January - squeezing hedge funds and others who had bet against the stock and costing them billions of dollars. A short is a bet that a share price will fall. The data provider Ortex on Friday estimated that short sellers were sitting on losses of about $19 billion only on GameStop shares in 2021 so far. The surge in GameStop and other heavily shorted stocks was driven by users of the Reddit forum Wall Street Bets. They forced prices up to make themselves money and to hammer hedge funds such as Melvin Capital; the funds had to buy shares in companies such as GameStop and the movie-theater chain AMC to close their short positions and sell other stocks to cover their losses.Click the Link to Read More: https://markets.businessinsider.com/news/stocks/gamestop-stock-funds-squeeze-sachs-biggest-short-goldman-2021-2-1030026939
Credit Risk
Global loan loss provisions and foregone revenue due to economic impact of pandemic will climb for the next few years 04/01/2021 - 14:03 |Written by Banking Exchange staff
Banks around the world could lose trillions in revenue over the next few years from foregone revenue and loan loss provisions. As the impact of the Covid-19 pandemic becomes clearer from quarterly reports, credit loss provisions and actual losses are mounting, according to several reports.
As of the end of September, banks around the world set aside more than $1.1 trillion to protect against individuals and companies defaulting on loans. Consultancy group McKinsey expects this figure to exceed the loan loss provisions made by banks following the global financial crisis of 2007-09.
For the first nine months of 2020, the biggest 100 banks in the US and Canada set aside $130.9 billion for loan losses, while the top 100 European banks set aside $72.2 billion. Asian banks’ provisions totaled $89.4 billion.
A separate report from S&P Global has estimated global credit losses to hit $2.1 trillion across 2020 and 2021. While North American banks are expected to account for $240 billion of the $926 billion increase in credit losses, Chinese banks are forecast to lose $398 billion.
The expected and realized losses could be compounded by falling returns for banks as interest rates remain at ultra-low levels for foreseeable future. The Federal Reserve has warned that rates could remain at near-zero until 2023.
According to a recent report from Deloitte, the average return on equity for the US banking sector is expected to fall to 5.6% in 2020. However, an economic recovery could see this rebound to 11.7% by 2022
Click the Link to Read More: https://www.bankingexchange.com/credit-risk/item/8521-bank-credit-losses-to-hit-2-1t-this-year-research-shows
Robinhood Is Said to Draw on Bank Credit Lines Amid Tumult By: Matthew Monks and Michelle Davis on January 28th, 2021
Robinhood the trading app that’s popular with investors behind this month’s wildest stock swings, has drawn down some of its bank credit lines to ensure it has enough cash to clear trades, according to people with knowledge of the matter. The firm, according to one of the people, has tapped at least several hundred million dollars, a significant amount of money for a firm that was valued at about $12 billion a few months ago. Robinhood’s lenders include JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to data compiled by Bloomberg. Representatives for Robinhood and those banks declined to comment
Click the Link to Read More: https://www.bloomberg.com/profile/company/1278015D:US
Consumer complaints against credit-reporting agencies double during pandemic. A bad mark on a credit report can wreak havoc on Americans trying to get a loan
By: Sandra Jones and Jill Riepenhoff on February 22, 2021
One out of every 20 Americans has a serious error on their credit reports, according to the Federal Trade Commission. James Casula believes he’s among that group. Last summer, Casula became concerned when he and his wife Jill were denied a loan to refinance their Delaware home. “We’ve never had an issue with our credit,” Mr. Casula said .
The 73-year-old said he discovered a $40,000 delinquent account on his credit report. “It was a shocker,” he said. “I thought it was a scam. In 2015, Mr. Casula suffered from a brain aneurism and was flown by a medical helicopter to the hospital. “I was petrified that he was not going to make it,” Mrs. Casula said. But her husband did survive that near-death experience. Then the couple received a bill from the medical transport company for $50,000 in 2016.
the federal Consumer Financial Protection Bureau told credit-reporting agencies that they can be “flexible” in responding to consumers disputing a problem with their credit report because of the pandemic.
Click the Link to Read More: https://www.live5news.com/2021/02/22/consumer-complaints-against-credit-reporting-agencies-double-during-pandemic/
Texas officials block electricity providers from sending bills, disconnecting utilities for nonpayment BY CASSANDRA POLLOCK FEB. 21, 2021UPDATED: 11 AM
Gov. Greg Abbott said he and other state leaders are working fast to find solutions for homeowners and renters facing steep electricity bills after a winter storm left many Texans without power for days. Texans are reporting receiving exorbitant electric bills despite not having power during the storm. One Texan, according to The New York Times, received a $16,752 electric bill.
After Abbott convened what his office described as an "emergency meeting" Saturday with lawmakers to discuss the issue, the Public Utility Commission on Sunday met to sign two orders, including one that would direct energy providers to temporarily stop disconnecting customers from power or water because they have not paid.
The commission also signed an order to stop companies from sending invoices or bill estimates to customers “until we work through issues of how we are going to financially manage the situation we are in,” commission Chair DeAnn Walker said.
Click the link to Read more: https://www.texastribune.org/2021/02/21/texas-electric-bill-greg-abbott/
His Lights Stayed on During Texas’ Storm. Now He Owes $16,752. By Giulia McDonnell Nieto del Rio, Nicholas Bogel-Burroughs and Ivan Penn Published Feb. 20, 2021Updated March 1, 2021
After a public outcry from people like Scott Willoughby, whose exorbitant electric bill is soon due, Gov. Greg Abbott said lawmakers should ensure Texans “do not get stuck with skyrocketing energy bills” caused by the storm.
SAN ANTONIO — As millions of Texans shivered in dark, cold homes over the past week while a winter storm devastated the state’s power grid and froze natural gas production, those who could still summon lights with the flick of a switch felt lucky.
Now, many of them are paying a severe price for it. My savings is gone,” said Scott Willoughby, a 63-year-old Army veteran who lives on Social Security payments in a Dallas suburb. He said he had nearly emptied his savings account so that he would be able to pay the $16,752 electric bill charged to his credit card — 70 times what he usually pays for all of his utilities combined. “There’s nothing I can do about it, but it’s broken me.”
Click the Link to Read More: https://www.nytimes.com/2021/02/20/us/texas-storm-electric-bills.html
Enhanced Stress Scenario Technique in a Covid-19 World
By Craig Spielmann and Stephen Woitsky
CFPPRO July,2020
The Covid-19 virus will continue to be the main focus of many organizations for the next few of years. Yes, folks until a proven vaccine is developed and made available, we are going to be stuck wearing face masks, sanitizing our hands 100 times per day and maintaining social distancing practices. However, the world does continue to turn, even though we can’t go out and enjoy it.
At RiskTao, LLc we recommend utilizing our Multiple Event Simultaneous Scenario (MESS) approach. This methodology enhances the standard scenario analysis methodology. The MESS approach is based on the theory that major events can occur simultaneously, and their occurrence should be assessed that way. We have already seen organizations battle with Covid-19 and tornados in the Midwest, powerful earthquakes off the coast of Japan and LA, and severe storms in Florida and the North East. California will shortly be entering the summer fire season and meteorologists are predicting a very active 2020 Atlantic hurricane season due to increased water temperatures.
The MESS approach combines two or more of these events into one scenario exercise because the impacts could be interrelated and have a profound effect on remediation efforts.To implement MESS, risk managers should select two (2) – four (4) major events occurring at the same time. Their goal should be to identify the challenges and interrelationships of these events on the organization’s strategy, technology, operations and plans . It will give clarity to potential weak points and position the organization to manage through extreme stress. We recommend that risk managers pick major events that have an existing history and have a good chance of occurring. For example, in California, I would recommend a MESS scenario that includes Covid-19, a massive fire and a significant earthquake. On the east coast of the US, I would recommend looking at Covid-19, hurricanes and a cyber-attack.
Stephen Woitsky, Group Risk Manager from Bank of the West , “MESS training provides management with important practices to expand their thinking and decisioning capabilities. They need this capability to address the natural or manmade risk in a suitable way. This can be the difference between success or failure.”In addition, we recommend using the full spectrum of ERM risks. Stephen’s view is “that scenarios need to use all major risk types such as credit, market, liquidity, strategic and operational risks to truly assess the MESS impact to their franchises.“ It is our belief that all risk assessment should use this approach and not limit themselves to one risk discipline.
Today, many assessments cover operational or compliance risks. We believe businesses should be assessed by how they manage all their risks.We ran the first major MESS exercise at CFP’s 2018 Risk Americas Conference. We had about 50 people and broke them into 5 separate groups. The simultaneous events were a “hot war with North Korea and a level 5 Hurricane hitting the DC to Boston corridor which is home to critical financial, communication, medical and government infrastructure as well as 45 Million people.”
We used data from NASA and several other government agencies as well as historical data to provide the groups with real life information. Hurricane Sandy was a classified as a category 1 / tropical storm when it hit the NY/NJ area and it destroyed many homes, businesses and infrastructure. Specifically, the MESS was that the Hurricane was expected to cause massive flooding in low-lying areas that include NYC, Boston, Jersey, Delaware, Maryland and Virginia shorelines. It was expected to cause extensive power outages, flooding, extensive damage to transit, severe beach erosion, damage to homes and business structures as well as bridges and tunnels. Banks and the stock exchanges enacted their contingency plans at remote locations. Simultaneously, tensions with North Korea reached a boiling point.
There were reports that North Korea will begin an all-out attack on Seoul. US troops were put on high alert and were considering a pre-emptive strike. China has warned the US to “stand down” and their military position was unknown. Global markets were in a “free fall” and exchanges were going into emergency shutdown. Companies and individuals were panicking and drawing down on their credit lines. Bank capital was quickly eroding as the price of their equity diminished. Liquidity dried up, as there were few buyers for stocks given the following: Massive real estate related exposures, business loans and consumer credit cards and loans.
Some commercial property mortgages were literally “under water” and probably unrecoverable. Unemployment was expected to reach 20 percent. Trade and commence with China and other nations was frozen due to the Korea hostilities. New treasury issues struggled to sell as China, Russia and other nations were no longer interested in funding the US government. Only 1 group out of 5 believed they could survive this MESS but would require massive government bailouts and capital requirement relaxation. The other groups believed they would go under. That was the beauty of the MESS exercise. It brought people to the brink and gave them a realistic look at what was over the edge if they didn’t thoroughly prepare.
Several strategic steps came out of the exercise such as exploring follow the sun operations, coast to coast contingency and recovery, operational resiliency reviews, senior management succession plans, delegation authority and loan portfolio diversification. Some of these are standard practices at many firms but the group was concerned that the ongoing monitoring and governance processes may be based on best case scenarios and not a MESS event.In conclusion, a MESS exercise is emotionally challenging and requires management commitment. However, there is no substitute for preparation and thorough planning. It takes intestinal fortitude to map out plans in light of these major events but that is the key to survival. The ability to face and prepare for potential major events occurring simultaneously will separate the survivors from the rest. It’s up to you to make the right choice.
Enhanced Stress Scenario Technique in a Covid-19 World
By Craig Spielmann and Stephen Woitsky
CFPPRO July,2020
The Covid-19 virus will continue to be the main focus of many organizations for the next few of years. Yes, folks until a proven vaccine is developed and made available, we are going to be stuck wearing face masks, sanitizing our hands 100 times per day and maintaining social distancing practices. However, the world does continue to turn, even though we can’t go out and enjoy it.
At RiskTao, LLc we recommend utilizing our Multiple Event Simultaneous Scenario (MESS) approach. This methodology enhances the standard scenario analysis methodology. The MESS approach is based on the theory that major events can occur simultaneously, and their occurrence should be assessed that way. We have already seen organizations battle with Covid-19 and tornados in the Midwest, powerful earthquakes off the coast of Japan and LA, and severe storms in Florida and the North East. California will shortly be entering the summer fire season and meteorologists are predicting a very active 2020 Atlantic hurricane season due to increased water temperatures.
The MESS approach combines two or more of these events into one scenario exercise because the impacts could be interrelated and have a profound effect on remediation efforts.To implement MESS, risk managers should select two (2) – four (4) major events occurring at the same time. Their goal should be to identify the challenges and interrelationships of these events on the organization’s strategy, technology, operations and plans . It will give clarity to potential weak points and position the organization to manage through extreme stress. We recommend that risk managers pick major events that have an existing history and have a good chance of occurring. For example, in California, I would recommend a MESS scenario that includes Covid-19, a massive fire and a significant earthquake. On the east coast of the US, I would recommend looking at Covid-19, hurricanes and a cyber-attack.
Stephen Woitsky, Group Risk Manager from Bank of the West , “MESS training provides management with important practices to expand their thinking and decisioning capabilities. They need this capability to address the natural or manmade risk in a suitable way. This can be the difference between success or failure.”In addition, we recommend using the full spectrum of ERM risks. Stephen’s view is “that scenarios need to use all major risk types such as credit, market, liquidity, strategic and operational risks to truly assess the MESS impact to their franchises.“ It is our belief that all risk assessment should use this approach and not limit themselves to one risk discipline.
Today, many assessments cover operational or compliance risks. We believe businesses should be assessed by how they manage all their risks.We ran the first major MESS exercise at CFP’s 2018 Risk Americas Conference. We had about 50 people and broke them into 5 separate groups. The simultaneous events were a “hot war with North Korea and a level 5 Hurricane hitting the DC to Boston corridor which is home to critical financial, communication, medical and government infrastructure as well as 45 Million people.”
We used data from NASA and several other government agencies as well as historical data to provide the groups with real life information. Hurricane Sandy was a classified as a category 1 / tropical storm when it hit the NY/NJ area and it destroyed many homes, businesses and infrastructure. Specifically, the MESS was that the Hurricane was expected to cause massive flooding in low-lying areas that include NYC, Boston, Jersey, Delaware, Maryland and Virginia shorelines. It was expected to cause extensive power outages, flooding, extensive damage to transit, severe beach erosion, damage to homes and business structures as well as bridges and tunnels. Banks and the stock exchanges enacted their contingency plans at remote locations. Simultaneously, tensions with North Korea reached a boiling point.
There were reports that North Korea will begin an all-out attack on Seoul. US troops were put on high alert and were considering a pre-emptive strike. China has warned the US to “stand down” and their military position was unknown. Global markets were in a “free fall” and exchanges were going into emergency shutdown. Companies and individuals were panicking and drawing down on their credit lines. Bank capital was quickly eroding as the price of their equity diminished. Liquidity dried up, as there were few buyers for stocks given the following: Massive real estate related exposures, business loans and consumer credit cards and loans.
Some commercial property mortgages were literally “under water” and probably unrecoverable. Unemployment was expected to reach 20 percent. Trade and commence with China and other nations was frozen due to the Korea hostilities. New treasury issues struggled to sell as China, Russia and other nations were no longer interested in funding the US government. Only 1 group out of 5 believed they could survive this MESS but would require massive government bailouts and capital requirement relaxation. The other groups believed they would go under. That was the beauty of the MESS exercise. It brought people to the brink and gave them a realistic look at what was over the edge if they didn’t thoroughly prepare.
Several strategic steps came out of the exercise such as exploring follow the sun operations, coast to coast contingency and recovery, operational resiliency reviews, senior management succession plans, delegation authority and loan portfolio diversification. Some of these are standard practices at many firms but the group was concerned that the ongoing monitoring and governance processes may be based on best case scenarios and not a MESS event.In conclusion, a MESS exercise is emotionally challenging and requires management commitment. However, there is no substitute for preparation and thorough planning. It takes intestinal fortitude to map out plans in light of these major events but that is the key to survival. The ability to face and prepare for potential major events occurring simultaneously will separate the survivors from the rest. It’s up to you to make the right choice.
2019 Risk Conferences
Past 2018 Risk Conferences -
07/21/2017 - RiskTao signed an agreement to provide CRO, AML,Risk, Strategy and Fund Raising Services with MobaComm, a innovative Fintech Startup. http://mobacomm.com
07/21/2017 - RiskTao sign an agreement to be on the advisory board for Risk Priorities, a regulatory software & solution company.
Sign up to hear from us about specials, sales, and events.
Copyright © 2017 RiskTao LLC - All Rights Reserved.
Powered by GoDaddy