MEDICI Risk Management – The Most Important Application of AI in the Financial Sector

The 2008-09 financial collapse led to a Federal Reserve directive that banks with consolidated assets over $50 billion have additional risk assessment frameworks and budgetary oversight in place. To assess a bank's financial foundation, the Federal Reserve oversees a number of scenarios (company-run stress tests). Referred to as the Comprehensive Capital Analysis and Review (CCAR) process, these tests are meant to measure the sources and use of capital under baseline as well as stressed economic and financial conditions to ensure capital adequacy in all market environments. As Ayasdi reports, Citi consistently struggled to pass its annual stress test, failing two of the first three stress tests. The bank was in need of a way to rapidly create accurate, defensible models that would prove to the Federal Reserve that they could adequately forecast revenues and the capital reserve required to absorb losses under stressed economic conditions.