Geopolitics forces risk rethink across modern banking strategies

Geopolitical tensions are fundamentally reshaping the way financial institutions approach risk, forcing a shift from predictive models toward resilience and adaptability, according to Stefano Biondi, Group Chief Risk Officer at Banco Mediolanum in Spain.

Speaking ahead of Risk Evolve, CeFPro’s flagship European conference event, Biondi argued that this shift is not incremental, saying: “It represents a move away from relatively stable, globalization driven assumptions toward a world defined by fragmentation, volatility, and political power dynamics.”

In this evolving environment, traditional forecasting is losing relevance. Instead, risk teams are increasingly focused on stress testing and preparing for multiple adverse scenarios as a baseline expectation rather than an exception.

“Preparedness for multiple adverse futures becomes the base case,” Biondi said, highlighting a structural change in how institutions define and manage strategic risk.

This transformation is particularly evident in how firms assess exposure to tariff, currency, and sanctions driven volatility. While some risks are well understood, Biondi warned that others remain indirect and underestimated.

“Financial institutions are exposed to tariffs indirectly through changes in borrower cash flows and collateral values,” he said. “Currency volatility may ultimately impact capital ratios and exposure hedging.”

These second and third order effects are often overlooked, creating hidden vulnerabilities that may only emerge under stress.

“The greatest danger is not volatility itself, but exposure you do not realize you have until it becomes irreversible,” Biondi added.

To address these risks, banks are redesigning their stress testing frameworks. The focus has shifted toward continuous, scenario driven systems that incorporate political and policy triggers, while placing greater emphasis on speed, contagion, and irreversibility.

“Stress testing is now treated as a strategic decision support tool, not just a capital adequacy check,” Biondi said.