Saturday, August 2, 2025
  • Login
Bullnews - Your Daily Source for Financial Insights, Stock Market Trends & Investment News
Advertisement
  • Home
  • USA
  • World
  • Investing
  • Alternative Investing
  • Personal Finance
  • Opinion
  • Retirement
  • ETFs
  • FX
  • Crypto
No Result
View All Result
  • Home
  • USA
  • World
  • Investing
  • Alternative Investing
  • Personal Finance
  • Opinion
  • Retirement
  • ETFs
  • FX
  • Crypto
Bullnews - Your Daily Source for Financial Insights, Stock Market Trends & Investment News
No Result
View All Result
Home Alternative Investing

Harnessing the Potential of Generative AI in Financial Risk Management

by bullnews
April 1, 2025
in Alternative Investing
Reading Time: 3 mins read
0 0
0
Harnessing the Potential of Generative AI in Financial Risk Management
0
SHARES
2
VIEWS
Share on FacebookShare on Twitter


Undoubtedly, Generative AI (Gen AI) has emerged as a transformative force. It’s comparable to other groundbreaking general-purpose technologies (GPTs) like the steam engine, electricity, semiconductors, and the internet, all of which have historically delivered substantial productivity enhancements.

These GPTs typically undergo a similar progression. Initially, there’s a productivity surge driven by a substitution effect. This is later outstripped by an augmentation phase, fueled by downstream innovations. Today, with Gen AI, we’re just at the beginning of this journey.

Currently, Gen AI is in the substitution phase, which often triggers the “Turing Trap” anxiety—an apprehension about machines replacing human jobs. This fear isn’t new; it echoes the anxiety that gripped the Luddites over 200 years ago. They destroyed machinery during the industrial revolution over concerns that such advancements would eliminate their jobs.

Despite these concerns, we’re already reaping productivity rewards. Intelligent automation is helping realize Adam Smith’s “division of labor” in a world where digital and human workers coexist. Digital agents are adept at handling tedious and repetitive tasks, freeing humans to engage in more complex activities requiring judgment, interpretation, and analysis.

To illustrate, consider the credit risk management practices of a large global bank. Typically, these banks establish a credit limit hierarchy with various exposure levels—such as counterparty, asset type, and jurisdiction. Managing the response to any breach of these limits, known as excess management, can become overwhelming. In a sizeable bank, thousands of breaches may occur daily, many of which—about 80%—are technical errors due to incorrect inputs or reconciliation mistakes.

Why is this significant? Treating every breach with equal urgency means skilled professionals spend undue time on non-critical issues. This inefficiency can even freeze credit lines unnecessarily, affecting business operations. Here, digital workers are exceptionally efficient. They can swiftly handle technical breaches by categorizing them and resolving those that don’t need human intervention, allowing human professionals to address more critical breaches effectively.

So far, Gen AI’s substitution benefits have already demonstrated considerable value. The upcoming augmentation phase promises even greater productivity gains, driven by continued innovation.

For financial institutions dealing with geopolitical, economic, and environmental uncertainties, maintaining consistent Economic Value Added (EVA) is a formidable challenge. This involves not only pursuing business growth (“offensive”) but also managing operational costs and risks (“defensive”).

The synergy of Gen AI and intelligent automation offers financial institutions a strategic advantage in tackling both goals. Gen AI aids in content analysis and generation across various forms, unearthing new insights and value. Simultaneously, intelligent automation enhances business process management and robotic process automation, enabling firms to act on these insights.

Yet, the financial risk management sector hasn’t fully tapped into Gen AI’s potential. Traditionally, banks have focused on defensive measures to meet Basel’s regulatory reporting requirements, emphasizing capital adequacy. Despite this, large language models (LLMs) and machine learning have already noticeably reduced risk management overheads through cost-effective simulations and regulatory analysis.

On the offensive front, however, Gen AI’s impact has been modest. Before the 2008 financial crisis, regulations aimed to converge “regulatory” and “economic” capital, encouraging risk metrics like Value-at-Risk (VaR) for cohesive risk management and business strategy alignment.

The financial crisis shifted this focus. Regulators stepped away from capital convergence and sought broader financial stability reforms. Meanwhile, newer finance models—like behavioral finance and mental accounting—gained traction, challenging outdated approaches like the modern portfolio theory (MPT).

Even when MPT principles remain valid, executing them reliably has always been challenging. The assumption that historical asset returns predict future distributions often proves inaccurate, hindered by non-stationarity, dimensionality, and flawed efficiency assumptions.

Here, Gen AI could revolutionize financial risk analytics, reshaping how risk teams collaborate with front-office operations for trading and portfolio optimization. Gen AI facilitates access to diverse and real-time data, extending beyond structured datasets to unstructured sources like market sentiment and social media patterns.

Looking forward, as risk managers integrate deep learning and reinforcement learning, their analyses become more predictive. This progress offers greater support to the front office, enhancing hedging strategies and portfolio models with synthetic data and deep hedging techniques.

Ultimately, this evolution empowers financial institutions to better manage improbable yet high-impact events, moving beyond typical market fluctuations. For a comprehensive discussion on leveraging Gen AI and intelligent automation, feel free to contact us.

Tags: FinancialGenerativeHarnessingManagementPotentialRisk
Previous Post

Trump Announces Tariffs Set to Begin on Wednesday

Next Post

A Savvy Investor’s Playbook: Strategies for Success in Any Market

Similar Stories

AGM Alts & Wealth Weekly News Summary | January 8, 2025

AGM Alts & Wealth Weekly News Summary | January 8, 2025

August 1, 2025
Growth Strategies for Separately Managed Accounts: Scaling and Strategy

Growth Strategies for Separately Managed Accounts: Scaling and Strategy

July 29, 2025

Reimagining Reporting as a Strategic Edge

July 24, 2025

An In-Depth Tax Guide for U.S. Family Offices

July 24, 2025

Weekly News Roundup: AGM Alts & Wealth

July 18, 2025

Do We Have All the Information We Need About Sacramento?

July 16, 2025
Next Post
A Savvy Investor’s Playbook: Strategies for Success in Any Market

A Savvy Investor's Playbook: Strategies for Success in Any Market

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

  • Trending
  • Comments
  • Latest
Trump’s Bold and Impactful Cabinet Selections Are Just What America Needs – News-Herald

Trump’s Bold and Impactful Cabinet Selections Are Just What America Needs – News-Herald

November 22, 2024
The Guardian’s Perspective: Global Justice at a Turning Point – The Imperative of Accountability for War Crimes | Editorial

The Guardian’s Perspective: Global Justice at a Turning Point – The Imperative of Accountability for War Crimes | Editorial

November 22, 2024
How Are U.S. Tariffs Impacting Your Business? Share Your Experience with Us.

How Are U.S. Tariffs Impacting Your Business? Share Your Experience with Us.

May 7, 2025
8 Updates to CPF in 2025

8 Updates to CPF in 2025

December 15, 2024
Trump’s Bold and Impactful Cabinet Selections Are Just What America Needs – News-Herald

Trump’s Bold and Impactful Cabinet Selections Are Just What America Needs – News-Herald

0
Don’t Let Political Turmoil Distract from the Climate Crisis

Don’t Let Political Turmoil Distract from the Climate Crisis

0
Democrats Challenge Trump Policies with Resistance Tactics

Democrats Challenge Trump Policies with Resistance Tactics

0
The Guardian’s Perspective: Global Justice at a Turning Point – The Imperative of Accountability for War Crimes | Editorial

The Guardian’s Perspective: Global Justice at a Turning Point – The Imperative of Accountability for War Crimes | Editorial

0
Why Do Jobs Get Revised and Is There a Better Approach? It Begins with the Data.

Why Do Jobs Get Revised and Is There a Better Approach? It Begins with the Data.

August 1, 2025
Why the U.S. Job Market Has Declined

Why the U.S. Job Market Has Declined

August 1, 2025
Ripple Executive Shares Insights on What Will Influence XRP’s Price

Ripple Executive Shares Insights on What Will Influence XRP’s Price

August 1, 2025
Understanding the Senate’s Affordable Housing Bill

Understanding the Senate’s Affordable Housing Bill

August 1, 2025
Bullnews - Your Daily Source for Financial Insights, Stock Market Trends & Investment News

Bullnews - Your Daily Source for Financial Insights, Stock Market Trends, Investment News, Cryptocurrancy News and More!

Categories

  • Alternative Investing
  • Crypto
  • ETFs
  • FX
  • Investing
  • Opinion
  • Personal Finance
  • Retirement
  • US News
  • World News

Site Map

  • DMCA
  • Disclaimer
  • Cookie Privacy Policy
  • Privacy Policy
  • Terms and Conditions
  • Contact us

Recent News

  • Why Do Jobs Get Revised and Is There a Better Approach? It Begins with the Data.
  • Why the U.S. Job Market Has Declined
  • DMCA
  • Disclaimer
  • Cookie Privacy Policy
  • Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2025 Bull News - All Rights Reserved.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • Home
  • USA
  • World
  • Investing
  • Alternative Investing
  • Personal Finance
  • Opinion
  • Retirement
  • ETFs
  • FX
  • Crypto

Copyright © 2025 Bull News - All Rights Reserved.