Worries about Asia’s economic prospects have grown significantly within the global financial services industry, according to the latest Systemic Risk Barometer survey, conducted by The Depository Trust & Clearing Corporation (DTCC).
The survey, first launched in 2013, canvasses opinion from DTCC clients and a broad range of domestic and international participants across the global financial services industry every six months.
An economic slowdown in Asia was listed by 22% of respondents to the latest survey as the biggest systemic risk to the broader economy – a sharp rise from the April 2015 survey when only 1% of respondents ranked an economic downturn outside of the European Union (EU) and the US as the biggest risk.
An 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 by 37% of respondents, up from 28% just six months ago. Similarly, an economic slump in Europe was cited by 24% as a top five concern, compared to 17% six months earlier. Commented one respondent, “The large macroeconomic items will drive the risks to the global economy.”
Although cyber risk remained the number one overall concern, with 25% citing it as the single biggest threat and 56% ranking it in their top five, these percentages were down from April 2015 when they were 46% and 80%, respectively. 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,” said Michael Leibrock, 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 reveals regional differences in the level of concern towards certain risks, with 62% of North American respondents citing cyber risk as a ‘top five’ concern against 38% 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 EU and the threat of deflation, which are listed as top five risks by 41% and 27% respectively of respondents outside of North America, including Europe, the Middle East and Africa (EMEA) and Asia-Pacific.
“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,” said Leibrock. “The systemic risk landscape remains dynamic as the industry wrestles with a growing number of challenges that could impact market stability.”
Identifying and addressing systemic risks remains a work in progress for many. About 63% 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% indicated their firm’s ability to identify, assess and manage both current and emerging systemic risks is still developing – in line with previous surveys.
An upgrade for the US, Europe and Japan is offset by downgrades for Mexico and other major emerging economies.
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