The Global Risks Alliance (GRA)
A model error rarely stays inside one decision. Flawed or outdated models can misprice risk across a portfolio, and when many institutions use similar models, data or vendors, their errors can align and amplify market moves. Real-world shocks, in turn, break the assumptions models rely on. This page shows how real-system and model vulnerabilities propagate through institutions and markets, using sector-level analysis. It does not assess individual firms or models, or constitute advice.
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For financial-system transmission, in GRA's spatial-finance reading, the map opens on night lights and population density with night lights tonight from NASA GIBS, framed on World; 4 further NASA layers wait in the list.Satellite and model products as NASA publishes them, each with its own date; indicators, not assessments of any place; claim ceiling INTEGRATED.
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GeographyFor financial-system transmission, in GRA's spatial-finance reading, the map opens on night lights and population density with night lights tonight from NASA GIBS, framed on World; 4 further NASA layers wait in the list.
Risk transmission in AI and Financial Model Risk is the path by which physical, transition, technology and systemic shocks reach the sector and travel onward through balance sheets, markets and the real economy. Analysis uses aggregated, sector-level indicators such as models in inventory and models validated within policy cycle; it assesses no individual firm and is not investment advice.
Fig.How GCRI, GRF and GRA share one field while the authorities decide. Design, not a record.
The working screen behind this subject: its structure, terms and states. Names are placeholders and values illustrative.
| Origin | Channel | Effect |
|---|---|---|
| Economic shock or regime change | Relationships in training data no longer hold | Credit, pricing and risk models misestimate |
| Climate and physical hazards | Losses outside the historical record | Catastrophe, credit and collateral models understate risk |
| Changes in customer behaviour | Data drift and concept drift | Fraud, credit and service models degrade |
| Data pipeline or vendor change | Silent changes to inputs | Errors that monitoring may not detect |
| Adversarial behaviour | Fraudsters or users adapting to models | Controls bypassed, false outputs |
When many institutions use similar models trained on similar data, they reach similar decisions at the same moment: tightening credit, repricing risk or selling the same assets. That homogeneity is a channel of systemic risk that supervisors and the FSB have flagged in their work on AI in finance. Topic depth at model risk governance.
Shared vendors, data and techniques mean many firms can be wrong in the same way at the same time.
Risk models that react to volatility can prompt many firms to de-risk together, deepening stress.
Reliance on a few AI and cloud providers creates shared operational dependencies.
Model failures can produce unfair or inaccurate decisions for customers, losses and capital shortfalls for institutions, and instability in markets. Generative AI adds risks of misinformation and data leakage. These links connect model risk to systemic interconnectedness at Financial Stability and to cloud and outsourcing at Financial Cyber and Operational Resilience, both at GRA, and to the evaluation of AI systems at The Global Centre for Risk and Innovation (GCRI) on model evaluation.
See model monitoring and drift, third-party models and stress and scenario models. Back to the financial discipline overview.
Analysis uses public and aggregated information at sector level. It does not assess individual firms or models, recommend vendors or constitute advice. Scenarios state their assumptions and are not forecasts.
Any data from institutions is designed to be aggregated before use, under the safeguards set out in GRA's written competition policy, which counsel reviews before membership opens.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Transmission channel | The route by which a shock reaches financial institutions' balance sheets. |
| Contagion | Transmission of losses or stress from one institution or market to others. |
| Second-round effects | Feedback from bank losses to the economy, such as tighter credit deepening a downturn. |
| Common exposure | Holdings of the same or similar assets by several institutions, which makes their losses move together. |
The bodies and documents this page is read against. Status and editions change; each link goes to the issuing body.
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.