An economic slowdown in Asia was listed by 22 per cent of respondents of a recent survey conducted by The Depository Trust & Clearing Corporation (DTCC) as the biggest systemic risk to the broader economy – a dramatic change from just one year ago when only one per cent of respondents ranked an economic downturn outside of the EU/US as the biggest risk.
The increasing focus on macroeconomic risks is further supported by rising concerns over the US and European economy. A US slowdown was ranked as a top five concern for 37 per cent of respondents, up from 28 per cent just six months ago. Similarly, an economic slump in Europe was cited by 24 per cent as a top five concern, compared to 17 per cent six months earlier. Commented one respondent: “The large macroeconomic items will drive the risks to the global economy.”
While cyber risk remained the number one overall concern, with 25 per cent citing it as the single biggest threat and 56 per cent ranking it in their top five, these numbers are down significantly from 46 per cent and 80 per cent, respectively, just one year ago. Added one respondent, “Cyber is never going to go away, but it seems the major players are investing heavily in prevention.”
“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,” says Michael Leibrock (pictured), Managing Director and Chief Systemic Risk Officer at DTCC. “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 vs. 38 per cent of survey participants elsewhere. They 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 E.U. 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. 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,” says Leibrock.
Identifying and addressing systemic risks remains a work in progress for many. About 63 per cent of those surveyed said they have 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 is still developing, which is consistent with previous surveys.
DTCC has been conducting Systemic Risk Barometer Surveys since 2013. They are completed by DTCC clients and a broad range of domestic and international participants across the global financial services industry every six months.
