Assessment of Potential Risks and Issues:

• Pressure on the Banking Sector, Mergers and Acquisitions: With ongoing inflation and increased interest rates, banks will face pressure that may lead to increased merger and acquisition activity. This necessitates a thorough understanding of current issues in the banking sector, precise modeling, and forecasting of bank balances;

• Credit Risk and Defaults: High-interest rates and capital regulation may limit liquidity in the corporate credit market. This could lead to an expansion of spreads on high-yield bonds and an increase in the number of defaults;

• Technological Progress and the Economy: Progress in artificial intelligence and automation will contribute to increased productivity, which may help most economies avoid recession despite rapidly growing default opportunities;

• Changes in Employment and Unemployment Sectors: Accelerating technological progress, combined with further deglobalization, will lead to sustained growth in structural unemployment. These trends may exacerbate a range of socio-economic issues;

• Risk Modeling Challenges: Increased frequency of unexpected events (i.e. Black Swans) will make it difficult to operate financial models, despite the growing complexity of modeling and heightened regulatory requirements. It will be important to consider model limitations and be prepared to respond quickly to changes.

Strategies for Risk Mitigation and Management:

• Regular Credit Risk Assessment: It is important, as mentioned earlier, to regularly assess credit risks, including the risk of the organization's own credit services, and use multiple models for more informed decisions;

• Understanding Model Limitations: Strong model risk management processes are necessary, especially in conditions that may violate the assumptions of stationarity and ergodicity required for most statistical risk models;

• Readiness for Quick Response: In conditions where model assumptions diverge from observed experience, more frequent reassessments or revisions will be required. It is important to have established processes and technologies for the rapid and efficient implementation of these reassessments.

These risk management strategies will help our bank successfully navigate uncertainty and leverage emerging trends to gain the edge.