Joshua Rosenberg: Thrive in any environment - strengthening resilience through risk management Remarks by Mr Joshua Rosenberg, Executive Vice President and Chief Risk Officer of the Federal Reserve Bank of New York, at the GARP Global Risk Forum, Federal Reserve Bank of New York, New York City, 7 November 2019. * * * As prepared for delivery Good morning and thank you for the opportunity to speak to you today. Let me begin by saying that the views I express are my own and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System. The ability to thrive in any environment, in both normal and chaotic conditions, is an organizational imperative. We can strengthen organizational resilience—“the ability to prepare and plan for, absorb, recover from, and more successfully adapt to adverse events”—through risk management.1 That’s because the tools of risk management help us make plans and take action today in the face of an uncertain tomorrow. In fact, we can deliver even more value to our organizations by defining resilience as a goal of risk management. Today, I will talk about some of the challenges to achieving resilience and how risk management can be part of the solution. While there are many aspects of resilience, I’m going to choose two challenges and their connection to risk management: organizational silos and the complexity of control. Organizational Silos The first challenge is organizational silos.2 Threats do not respect organizational boundaries. Some, like cyber threats, actually exploit them.
A primary focus of the new Prudential Regulation Authority will be on determining whether the business models, governance and systems and controls of firms will enable them to satisfy the public interest in financial stability in future states of the world. That requires both a macro and micro prudential view, and for the two to come together to reach forward-looking judgements on whether financial stability is likely to be preserved in a range of plausible future outcomes. This range of outcomes is important, and it also underlines the need to build up the role of stress testing. Such testing is an important mechanism for describing the forward-looking view though it should continue to evolve from a binary pass-fail world into one where it is a toolkit to test a range of possible future states of the world and thereby judge the wider resilience of firms. The PRA will exercise judgement in the supervisory actions it takes, so that firms are likely to be able to meet its objectives, policies and rules over the medium term horizon. Firms will need to demonstrate to the PRA that they are robust to a variety of states of the world, including unanticipated stress scenarios. However, since it is not possible for any forecast to cover all possible outcomes, there will always be some probability of firms failing.