Michael Leibrock: DTCC managing director
An economic slowdown in Asia is considered the biggest systemic risk facing the broad economy, according to some of the world’s major banks and other financial institutions in the latest survey conducted by DTCC. This is a big shift from the same survey only six months ago.
DTCC (the Depository Trust & Clearing Corporation) is the US-based global backoffice company owned by the industry – mainly the big banks and fund managers. In its latest six-monthly survey of members and other big institutions, it says that the risk of an economic downturn outside the US or Europe had jumped from 1 per cent to 22 per cent as assessed as a proportion of respondents.
However, there were also rising concerns about a slowdown in both the US (up from 28 per cent to 37 per cent) and Europe (up from 17 per cent to 24 per cent) in the past six months.
The large macroeconomic items will drive the risks to the global economy, according to one respondent.
Cyber risk remained the number one concern for the financial institutions, but it has declined somewhat in the past six months, down from 46 per cent considering it their top worry to 25 per cent.
Cyber is never going to go away, but it seems the major players are investing heavily in prevention, a respondent said.
Michael Leibrock, DTCC managing director and chief systemic risk officer, said: “We’re not surprised to see an increase in concerns about the global economy, especially in Asia where we have seen the economy slow down in China sharply in recent years compared to three decades of mostly double digit growth.
“Interestingly, while cyber risk remains very much top of mind, concerns have decreased over the last year, raising a red flag that firms need to remain vigilant in the face of this persistent threat.”
The survey also revealed differences regionally in the level of concern towards the various risks. For example, 62 per cent of North American respondents cite cyber risk as a top-five concern compared with 38 per cent of survey participants elsewhere. The North Americans also include the impact of new regulations and liquidity as a top-five concern about twice as often as their counterparts in other parts of the world.
Conversely, North American respondents are significantly less concerned about the possibility of Britain leaving the EU and the threat of deflation, which are listed as top-five risks by 41 per cent and 27 per cent respectively of respondents outside of North America, including EMEA and APAC.
“We’ve seen some dramatic shifts in systemic risk concerns over the last 12 months as new threats take on greater prominence in the industry,” Leibrock said. “The systemic risk landscape remains dynamic as the industry wrestles with a growing number of challenges that could impact market stability. The Barometer provides insight into current thinking and is an important tool to drive discussion and dialogue on global risk issues.”
Identifying and addressing systemic risks remains a work in progress for many. About 63 per cent of those surveyed said they had increased the amount of resources dedicated to identifying, monitoring, and mitigating systemic risk over the past year. Additionally, 66 per cent indicated their firm’s ability to identify, assess and manage both current and emerging systemic risks was still developing, which was consistent with previous surveys.
* Greg Bright is publisher of Investor Strategy News (Australia)