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Risk and Regulation

McKinsey’s risk and regulation experts work with clients to address the impact of new regulatory requirements and to seize market and competitive opportunities arising from regulatory change.

Regulatory changes in financial services have come with dizzying speed and complexity, often with massive implications for business models and competitive strategies. Our exceptional team of senior practitioners and former regulators has a deep understanding of the regulatory landscape, born of extensive client experience and relationships with regulatory bodies around the globe.

We invest continuously in knowledge initiatives to deepen our insights in risk and regulation, monitoring leading industry responses to the most recent interpretations of US and European frameworks such as Comprehensive Capital Assessment Review (CCAR) and Fundamental Review of the Trading Book (FRTB). Our dedicated Risk Center of Competence deploys experienced analysts from around the world that develop focused, subject-specific analyses on pressing risk-management topics from deep data pools.

Our risk roundtables on top regulatory topics foster discussion and the exchange of ideas among senior executives from leading financial institutions in every corner of the world. For example, we convene executives from the majority of banks subject to the CCAR in North America and stress testing and Supervisory Review and Evaluation Process (SREP) in Europe.

How we help clients

Capital and balance-sheet management

We can help banks optimize internal approaches and external communications around their risk-weighted assets and capital measurement (for example, Basel Pillar 1, economic capital), as well as improve capital management processes, capital allocation and hurdle rates, and approaches to governance. We have helped leading institutions improve their business models by identifying tactical and strategic approaches to optimize the balance sheet.

Funding, liquidity, and treasury management

We help institutions optimize their ALM and treasury function, using diagnostics to redesign governance and organization. We enable institutions to implement best practices in liquidity management, management information systems, and investor relations. We have helped clients achieve significant improvements in managing the customer business, including funds transfer pricing, limit structure, and management of flows.

Trading and market risk management

Our teams work with leading financial institutions in their analysis, review, and implementation of market and counterparty risk methodology and processes. We help them meet the high operational requirements of regulators for market risk management effectively and efficiently and ensure implementation of FRTB. We are able to provide diagnostic analyses, flash surveys on pressing regulatory topics, and support for regulatory engagements and mobilization programs.

Working with asset managers, we help realign investment-management decision making, using, for example, normalized return assumptions instead of business expectations. Institutions can achieve greater centralization of their hedging policies and introduce economic optimization tools.

CCAR, SREP, and stress testing

McKinsey’s risk and regulation teams can put in place an end-to-end stress testing framework, including scenario analysis, loss and pre-provision net review models, as well as help prepare supervisory response. We help institutions prepare for production, embed enhancements into regular capital planning processes, and strengthen governance, including effective challenge and documentation. In the context of difficult negotiations with regulators, we can design and support a project management office to ensure implementation and identify improvement actions.

Model risk management

We have experience supporting leading institutions in the end-to-end modeling cycle for risk management, including model strategy and setup, model development, model validation, and model use.

Recovery and resolution planning

We approach recovery and resolution planning by defining a playbook of actions and capabilities needed to facilitate resolution, based on robust simulations of different scenarios. We have helped banks articulate their resolution plans for regulators, identify and calibrate triggers for executing recovery plans, and qualify and quantify the impact of living wills on different business lines.

In each of these areas, we create proprietary tools, generate new insights, convene meetings with business leaders and industry experts, and conduct research and surveys to develop and publish seminal knowledge. For our most recent risk research, visit Our Insights page, or contact our Risk Center of Competence.



Perspectives on CCAR: Confronting uncertainty in the 2018 cycle

– For the third year in a row, no bank failed the Comprehensive Capital Analysis and Review (CCAR) on quantitative grounds. And... while regulatory uncertainty remains a challenge, banks have more to do to prepare for CCAR 2018 and to build their longer-term approach for stress testing.

Resolution planning: How banks can tackle legal-entity rationalization in 2017

– Here’s a primer on how banks can plot this year’s work.

Sustainable compliance: Seven steps toward effectiveness and efficiency

– Banks do not control the demand for compliance, but they can optimize the effectiveness and efficiency of their response.

The evolution of model risk management

– An increasing reliance on models, regulatory challenges, and talent scarcity is driving banks toward a model risk management organization... that is both more effective and value-centric.