From the Editor

Welcome to the ninth edition of Moody’s Analytics Risk Perspectives™, a publication created by risk professionals for risk professionals.

“It is not the strongest or the most intelligent who will survive but those who can best manage change,” said Leon C. Megginson, a professor of management and marketing. The quote (often erroneously attributed to Charles Darwin) resonates as we work to separate the noise of economic, political, and regulatory uncertainty from the end goals of our work – better understanding and quantifying the risks we face. Keeping an eye on the proverbial prize can help separate the signal from the noise.

Our 2016 magazine editions focused on the challenges posed by the new accounting standards for allowance, IFRS 9 and CECL, and the resulting need for a new breed of expertise: risk management with a deep understanding of accounting and finance. In 2017, we are expanding on the themes of what is challenging the way we have always approached risk management in banking. Emerging technologies and new applications of existing technologies in banking have been grabbing headlines. Is the branch-banking relationship model dead? Does the speed of the credit approval process offered by the alternative lenders threaten the existence of small business lending products offered by banks? Does access to digital payment systems mean that millennials will not bank with traditional financial institutions?

“Disruptive technologies typically enable new markets to emerge,” wrote Clayton M. Christensen in The Innovator’s Dilemma. This view, which I share, suggests that disruption can lead to a larger pie. The question is how to manage this disruption, which is the theme of this edition. Our Spotlight section features articles on the criticality of effective onboarding processes in small business lending and applications of machine learning (a new application of an existing technology) to commercial loan credit risk assessment. We also feature an article on improving data preparation for modeling – a topic of passionate debate for credit modelers.

We have broadened the magazine to include an Op-Ed section, where we invite candid views from practitioners on emerging issues. Keith Berry and Cayetano Gea-Carrasco write on the impact of innovation on financial services, Dr. Anthony Hughes discusses the impact of ride-sharing services on auto production, and Dr. Deniz Tudor searches for better approaches to risk management as Dodd-Frank stress testing matures.

As always, we welcome your comments and look forward to a conversation.

Anna Krayn
Editor-In-Chief
Senior Director and Team Lead,
Capital Planning and Stress Testing