Andrew Bailey, the Bank of England Governor, stated recently that the Bank must be “very alert” to geopolitical risks as financial markets are thrown into fresh turmoil by Donald Trump’s stated desire to control Greenland, and the risk of a trade war. It warns that geopolitical risk is now the most cited systemic threat, with further fragmentation likely to suppress UK GDP growth and amplify vulnerabilities. For mortgage lenders and servicers, this translates into tangible portfolio risks: reduced household affordability, potential increases in unemployment, and increased borrower stress. A seemingly distant trade dispute or energy shock can swiftly translate into rising arrears, falling property valuations, and capital pressures.
The Canadian Prime Minister and former Bank Governor said at the World Economic Forum, “we are in the midst of a rupture not a transition”. It is a challenge we have not faced for a long time as traditional risk models fail to capture the apparently unconnected cross-border nature of such shocks. However, such factors now need consideration in credit risk decisions and liquidity planning. Trade fragmentation can increase costs, feeding domestic inflation, constraining monetary policy, and compress household affordability — directly increasing defaults and losses, pressurising mortgage portfolios.
How We Support CROs
Since 2008, we have specialised in helping risk functions transform servicer oversight from a compliance exercise into a strategic advantage. Our support includes:
- Best practice reviews: Independent challenge on whether risk appetite, underwriting standards, and limits remain credible under current stress scenarios
- Risk scenario design: Develop and stress-test plausible scenarios, ensuring resilience plans are not limited by outdated thinking
- Governance & culture Assessment: Review the effectiveness of risk governance, including reporting, the three lines model, and risk culture’s capacity to deal with emerging threats
- Deep-Dive on concentration risks: Provide an external lens on sectors, geographic, or collateral-type concentrations that could amplify losses
- Assurance on mitigation actions: Audit the implementation and effectiveness of planned mitigations, including forbearance strategies
The question for CROs is no longer whether geopolitical shocks will materialise, but whether existing stress testing, governance, and mitigation frameworks would withstand supervisory scrutiny when they do.
