Risk management in Frankfurt

Risk management in a bank means measuring and limiting the losses it can suffer: from borrowers who do not pay (credit risk), from prices that move against its positions (market risk), from running out of cash (liquidity risk) and from failed processes, people and systems (operational risk). In Frankfurt the people who check that work are close by. ECB Banking Supervision directly supervises the significant banks of the euro area from its Frankfurt headquarters, and the European Systemic Risk Board, hosted by the ECB, watches risk across the whole financial system. The European insurance supervisor EIOPA has its seat in the city as well.

For smaller German banks the supervisors are national. BaFin, with offices in Bonn and Frankfurt, and the Deutsche Bundesbank, headquartered in Frankfurt, share the ongoing supervision: the Bundesbank carries out most of the audits and analysis, and BaFin takes the formal decisions. A risk officer at a Frankfurt savings bank and one at a large universal bank two streets away can therefore answer to different supervisors while measuring the same kinds of risk.

The Mindestanforderungen an das Risikomanagement (MaRisk) are BaFin's circular on how a German bank organizes its risk management: risk strategy, risk-bearing capacity, stress tests, the risk control function, the compliance function and internal audit. The circular sits under section 25a of the German Banking Act (KWG) and is written in principles, so a small cooperative bank applies it more simply than a large institution.

BaFin and the Bundesbank revised the circular again in a MaRisk amendment (in German) with the headline "more proportionality": the requirements became more principle-based, their complexity was cut and small and very small banks received further relief. The previous amendment had added the European guidelines on interest rate risk and credit spread risk in the banking book. Anyone who works in risk control at a German bank reads MaRisk next to the EU capital rules of the Basel III framework, which set how much capital each risk needs.

The largest group are the risk teams of the banks themselves: credit risk analysts who rate borrowers, market risk teams who calculate value at risk for trading books, treasury and liquidity risk teams, and the non-financial risk teams that cover operational, IT and outsourcing risk. Around them work auditors, consultancies and data providers. d-fine, a consultancy with its head office in Frankfurt, calls its work "analytical, quantitative and technological" and counts banks, insurers and asset managers among its clients.

The profession also has its own association in the city. The Frankfurt Institute for Risk Management and Regulation (FIRM) calls itself "the first address in risk management". By its own account almost all major credit institutions from the German-speaking countries take part, together with Deutsche Börse, consultancies, corporates and the State of Hesse, and its work rests on exchange between members and people from science and regulation.

The Frankfurt School of Finance & Management runs a line of executive programs on regulation and risk management. Its Certified Expert in Risk Management covers credit, market, liquidity and operational risk and practical work in stress testing, scenario analysis and portfolio monitoring. It is an online course of 10 units over about six months, with assignments and a final exam. Frankfurt School also offers a certificate in climate risk management and a program that combines risk management with corporate governance and compliance, which also counts toward its Diploma in Risk Management.

Someone new to the field should learn the four risk types and how each one turns into a capital number, then read the risk inventory and the risk-bearing capacity concept of MaRisk. The credit risk and liquidity risk answers in the knowledge hub are a short start.

Non-financial risk has moved up the agenda. Since DORA took effect, IT risk, cyber incidents and the risk of IT suppliers have their own EU regulation, and a bank's ICT risk control function checks them next to credit and market risk. Cybersecurity in German finance is now a board topic for that reason. Climate and environmental risks are the second topic: Frankfurt School teaches them as their own discipline, and supervisors expect banks to include them in their risk inventory.

The third topic is models. Banks use machine learning in credit scoring and fraud detection, and the EU AI Act treats consumer credit scoring as high-risk, so model risk management and AI governance now meet in the same department. Quantum computing is a longer-term item: it may speed up the simulations behind risk models, and it threatens the cryptography that protects bank data, as covered on the page on quantum finance in Frankfurt.

Finance Loop is the meeting place for risk managers, compliance officers and the IT and data people who build their tools. It connects the finance, IT and AI communities in Frankfurt and holds events in Munich, Berlin and Hamburg as well.

Finance Loop co-organized the Frankfurt Quantum Finance Forum at Frankfurt School with the Deutsche Bundesbank and IBM, where risk modeling and quantum risk to cryptography were topics. d-fine is one of Finance Loop's event and network partners. At the AI Week Frankfurt side event, presented by Finance Loop with Frankfurt Main Finance, talks covered trusted AI and AI in anti-financial crime work. Finance Loop is a member of Frankfurt Main Finance, and many evenings take place at TechQuartier.

It is the work of finding, measuring, limiting and reporting the risks a bank takes: credit, market, liquidity and operational risk above all. In Germany MaRisk sets how the bank organizes that work, and the EU capital rules set how much capital each risk needs. The knowledge hub answer on risk management in banking goes through the functions.

ECB Banking Supervision directly supervises the significant banks, all from Frankfurt. Less significant banks are supervised by BaFin and the Bundesbank, which also support the ECB in the joint supervisory teams for the large German banks.

Credit, market, liquidity and operational risk, regulatory frameworks, and practical work in stress testing, scenario analysis and portfolio monitoring. According to Frankfurt School, it runs online over about six months in 10 units, each unlocked by a short test, with three assignments and a final exam.

FIRM is an association in Frankfurt for risk management and regulation in the financial sector. Its members include most major banks of the German-speaking countries, Deutsche Börse, consultancies and the State of Hesse, and it organizes exchange between them and people from science and regulation.

Finance Loop runs evenings in Frankfurt where risk, compliance and technology people from banks and fintechs meet, often at TechQuartier. Upcoming dates are in the calendar on this page.