Despite the imminent release of vaccines, COVID-19 remains the number one threat to financial stability in the year ahead, according to a new study by The Depository Trust and Clearing Corporation (DTCC).
The 2021 DTCC ‘Systemic Risk Barometer’, based on a survey of 220 financial institutions globally, found about two-thirds of respondents were concerned both about stretched equity valuations and the “unintended consequences” of massive fiscal stimulus measures in the wake of the coronavirus pandemic.
A majority of respondents (55%) expect market volatility in 2021 to be substantially higher than historical averages,” the report says. “Similarly, 42% of respondents expect systemic risk and financial instability to be worse in 2021 than in 2020.”
About half (54 per cent) of those surveyed also ranked cyber risk as high on the agenda, although the result was down almost 10 per cent on last year’s survey.
The US presidential election outcome also sparked concerns from half of the DTCC survey respondents – albeit with a wide disparity between those based in North America (64 per cent) and the rest of the world (24 per cent).
“In relative terms, North American respondents are more concerned about the U.S. Presidential Election Outcome, Cyber Risk and Sudden Dislocation in Financial Markets,” the report says.
However, a higher proportion (53 per cent) of non-Americans ranked broader geopolitical risks as a major worry compared to those in North America (41 per cent).
Global debt also zoomed up the risk barometer this year with a third of respondents citing high government borrowing levels as a concern, rising from 24 per cent in the previous annual period.
Michael Leibrock, DTCC chief systemic risk officer, said in the release: “While these actions from central banks and governments were necessary and prudent to offset some of the immediate impact from the Coronavirus, the longer term sustainability of further increases in debt levels could present challenges for global economies in the future.”
A substantial minority (42 per cent) of respondents also said “the worst is yet to come” for systemic risk and financial instability in 2021.
Compared to the previous year’s survey, worries about global economic slowdowns, Federal Reserve monetary policy and funding liquidity all receded in the latest DTCC annual fear gauge.
DTCC, the global financial trading back-office specialist, has conducted the risk survey since 2013.