Once a bastion of stability, the banking industry now finds itself navigating a complex world of evolving risks.

From economic uncertainty and geopolitical tensions to AI advancements and climate crises, the industry is navigating a whirlwind of risks that show no signs of slowing down.

What worked in the past won’t cut it moving forward. As we head into 2025, banks must rethink their approach to risk management, ensuring they’re not just reacting to disruptions but staying ahead of them.

The risk quake: What’s shaking up banking?

Traditional risks – credit, market, and operational – are still at the top of mind, but a wave of new threats is crashing in, demanding just as much attention.

  • AI’s double-edged sword: While AI offers immense potential, it also introduces new challenges, including algorithmic bias, model risk and cybersecurity threats. As banks work to mature their AI strategies, effective and trustworthy AI implementation and governance are imperative to avoid even greater risk.
  • Tectonic geopolitical rifts: Increasing geopolitical tensions, trade and tariff disputes and sanctions can disrupt global supply chains, impact currency exchange rates and create market volatility. As wars abroad escalate and spread and new political parties rise to power, banks must be highly adept at simulation and forecasting to determine potential asset impacts and liabilities. Additionally, these geopolitical challenges are giving way to increased and constantly shifting sanctions, requiring banks to optimize sanction and enforcement screening technology to ensure compliance.
  • Volatile markets: Fluctuating interest rates, volatile equity markets and unpredictable commodity prices can expose banks to significant market risks. As these risks increase in frequency and scope, banks must have appropriate integrated balance sheet management, asset liability management and liquidity risk management technology solutions to help them navigate uncharted territory.
  • Unsettled economic policy: Changes in monetary and fiscal policies can have far-reaching consequences for financial institutions, affecting interest rates, credit, and market risks.
  • Shifting regulatory demands: The pace of regulatory change is steadily increasing. While regulation may roll back in some geographies, it continues to increase in others. Consumer protections, privacy and AI regulation are all top priorities for further regulatory action, and banks must be prepared to manage shifting regulatory measures across geographies. Additionally, while banks have heavily invested in risk management transformation, too little investment has been made in compliance management and transformation, further exposing banks to greater compliance risk.
  • Climate in peril:  Politicians and scientists may continue to argue the merit and forecasting accuracy of scientific data, but the increasing frequency and severity of climate-related events such as hurricanes, catastrophic flooding and wildfires cannot be ignored. These climate crises negatively affect bank operations, employees, communities and assets – and banks must do more than take a rubber-stamp approach to addressing climate challenges. Practical scenario analysis, stress testing, and asset liability management are minimum requirements as risks continue to rise, such as floodwaters.

Driving impact through insight

To effectively manage these expanding risks, banks must use data-driven insights. For example, according to a report by McKinsey & Company, banks are increasingly using advanced analytics to identify and mitigate credit risks. By analyzing large datasets, banks can better assess borrower creditworthiness and predict default probabilities.

Furthermore, the COVID-19 pandemic highlighted the importance of liquidity risk management. As market volatility surged and economic uncertainty deepened, banks faced liquidity challenges. Many institutions implemented more stringent liquidity stress testing and contingency planning to address this.

Integration and optimization to manage evolution

In response to these evolving risks, banks are adopting an integrated approach to risk management, combining various risk management disciplines, such as credit risk, market risk, operational risk and liquidity risk, into a unified framework. A holistic view of risk helps banks identify and manage potential vulnerabilities more effectively and spot positive business impact opportunities.

Banks are also placing greater emphasis on integrated balance sheet management (IBSM). IBSM involves optimizing the allocation of assets and liabilities to maximize profitability and minimize risk. By carefully managing their balance sheets, banks can improve their resilience to adverse market conditions and regulatory change.

Focusing on a path forward

To navigate risk and ensure long-term sustainability, banks must continue increasing their technology investments. Rather than adopting numerous technologies that further complicate their already fragmented ecosystem, banks would benefit from adopting a unified technology platform that supports process automation, integration across risk areas and advanced analytics.

This approach will help the institution make more informed, data-driven, holistic decisions while proactively managing existing and emerging risks and identifying opportunities for acceleration and growth. Banks can build greater resilience and emerge as leaders by prioritizing these key focus areas.

What else is trending in banking for 2025? 

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About Author

Julie Muckleroy

Global Banking Strategist

Julie Muckleroy is a Global Banking Strategist in SAS’ Global Industry Marketing organization. Prior to joining SAS, Julie held a variety of marketing leadership roles overseeing brand, editorial, content, and digital experience for both SaaS organizations supporting global banks as well as directly within large US banks like Bank of America and Wells Fargo. Julie has expanded her marketing expertise to incorporate a deep knowledge of the banking industry and spends her time at SAS evaluating global banking trends and the future state of banking, serving as a strategist at the crossroads of banking, market strategy and marketing.

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