Covid-19 tops DTCC’s Systematic Risk Barometer

It is no surprise that Covid-19 tops the list as the greatest threat to global financial stability in 2021, according to the Depository Trust and Clearing Corp’s (DTCC) annual Systematic Risk Barometer.

The survey found that nearly one third or 31% of the 220 respondents cited the pandemic as the biggest risk while around two thirds or 67% ranked it in the top five.

Andrew Gray, Group Chief Risk Officer at DTCC

More specifically, when asked how Covid-19 may affect financial stability going forward, 68% expressed concerns over stretched equity valuations, reflecting unrealistic expectations about the economy’s recovery.

Nearly the same percentage of respondents believe that fiscal stimulus measures, while effective at preventing a short-term economic collapse, may have unintended consequences that could prove disruptive to financial stability in the longer run.

Slightly over half (55%) expect market volatility next year to be substantially higher than historical averages while 42% of respondents anticipate systemic risk and financial instability to be worse in 2021 than in 2020.

“It is safe to say that 2020 can be classified as a year that defied predictions,” said Andrew Gray, Group Chief Risk Officer at DTCC who started the Barometer in 2013.

He added, “As the coronavirus spread around the world in March, we saw unprecedented volatility and trade volumes across nearly every asset class,”. “Despite these challenging conditions, financial market infrastructures around the world have proved resilient, demonstrating their crucial role in safeguarding financial stability.”

As for other main risks, 54% placed cyber on the chart, although this was down from 63% in last year’s survey. However, several respondents said cyber-attacks are becoming increasingly sophisticated, indicating that it is “always an underlying threat.”

Respondents also highlighted the growing prevalence of cyber risk due to increased remote working environments as a result of the pandemic.

Around half of the respondents pointed to the outcome of the US presidential election as a main risk because of the direct impact on trade, fiscal and monetary policies over the next few years.

Overall, geopolitical risks and trade tensions were seen as a top 5 risk by 45% of respondents this year.

There was also growing concerns over global debt with 33% of respondents placing this as a top 5 risk, up from 24% last year.

“Global debt levels, which were already elevated prior to the coronavirus outbreak, have increased due to a series of stimulus measures and monetary policy accommodations”, said Michael Leibrock, Chief Systemic Risk Officer at DTCC. “While these actions successfully mitigated some of the pandemic’s short-term economic impact, the sustainability of the resulting high debt levels could present challenges in the future.”

©BestExecution 2020

Instinet launches digital private investment platform

Instinet Incorporated (“Instinet”) announced the European launch of Instinet DealMatch, a new digital investment...

KPMG and AccessFintech partner to aid digital transformation

KPMG and AccessFintech have joined forces to help financial institutions with digital transformation. AccessFintech’s Synergy...

Euronext takes the first step to a European clearing house

Euronext has changed how it calculates risk in government bond trades in the first...

Instinet launches digital private investment platform

Instinet Incorporated (“Instinet”) announced the European launch of Instinet DealMatch, a new digital investment...

KPMG and AccessFintech partner to aid digital transformation

KPMG and AccessFintech have joined forces to help financial institutions with digital transformation. AccessFintech’s Synergy...

Euronext takes the first step to a European clearing house

Euronext has changed how it calculates risk in government bond trades in the first...