Geopolitics in the age of Trump

The challenges of managing market risk in times of extreme uncertainty were explored in Risk.net’s inaugural Market Risk Leaders’ Network in April. The meeting took place amid recent tariff-related market turmoil, with US president Donald Trump having announced a 90-day pause on reciprocal tariffs overnight.

Attendees discussed how market risk leaders are responding to the unpredictability and speed of recent geopolitical developments, sharing experiences and best practices for stress-testing and intraday risk assessment.

Key takeaways:

• Trying to predict market shock catalysts is less important than building resilience to a range of outcomes and understanding portfolio vulnerabilities.
• Regulatory stress tests often fail to provide any meaningful risk insights. In contrast, ‘bootleg’ models and targeted scenarios are crucial.
• Reverse stress-testing and stressed value-at-risk are increasingly gaining traction as practical risk management tools.
• The prospect of regulatory delays and divergence in implementing Basel 3.1 could make it harder to comply with global standards.
• Market risk leaders are focused on improving T+1 risk reporting while grappling with the challenges of latency, technology infrastructure and data quality.
• Intraday risk management remains aspirational for many firms. In-person communication is the most reliable form of insight, and building relationships with traders is paramount.
• Market risk leaders are concerned about the declining appeal of market risk roles and view rotation and training programmes as solutions.
• The adoption of artificial intelligence is challenging because of market risk’s intuitive, model-driven nature, but the picture is expected to change rapidly over the next couple of years.