Mark Branson, CEO of the Swiss Financial Market Supervisory Authority (FINMA), is certain the simpler – the better. After having scrutinized structures of the largest global banks, he came to a conclusion that a complicated model of financial risks makes it difficult to get an accurate estimate. The top official referred to forecasts made by Goldman Sachs when the financial crisis of 2008 was in full swing and in early 2015 when the Swiss franc was on a roller coaster following the decision of the Swiss National Bank. It was that time when market participants took notice that forecasts based on available statistical methods deviate from actual behavior of traders and markets. Goldman Sachs chief financial officer noted that some events took place with much higher frequency than it was predicted by various statistical methods. According to the Goldman Sachs executive, financial markets witnessed some events in a row unfolding in just several days which would take place once in 25 years as forecasts suggested. In his research, Mark Branson paid particular attention to the way banks work out their own levels of risk using complex mathematical models. “Just over 20 years ago, internal models for assessing financial risk were popping up everywhere as banks suddenly discovered the laws of physics,” the top executive said. “Bankers and supervisors were convinced that the modelling used to analyze natural phenomena could also be applied to financial risk. As it turned out, they were wrong.” FINMA has devised a number of methods to iron out discrepancies between the banks’ internal assessment of risk and calculations carried out by outside agencies.
