Michael Leibrock, DTCC Chief Systemic Risk Officer
In his article, “Financial Services: Are We Becoming Complacent About Systemic Risk?,” published in Wall Street & Technology, Michael Leibrock, Chief Systemic Risk Officer, DTCC, explains why the industry must be mindful of lessons learned from the crisis of 2008 and remain vigilant in protecting against future shocks.
Excerpt from “Financial Services: Are We Becoming Complacent About Systemic Risk?”
As history has demonstrated, the further away we move from a crisis, the less vigilant we tend to become in protecting against future shocks. A recent survey of financial firms conducted by The Depository Trust & Clearing Corporation (DTCC) suggests this phenomenon may be playing itself out when it comes to the attention currently being paid to mitigating systemic risk. In 2013, 37% of respondents felt that a high-impact market event was likely to occur in the next year, but that figure dropped to just 9% this year. Similarly, respondents who ranked the disruption of a key market participant as the top risk for their firm fell from 61% to 42%.
There could be many reasons for this change in perception among industry participants, and we may one day look back on this period as one of steady financial stability. Or this change could prove to be a deceptively calm period preceding the storm of yet another financial crisis. Only time will tell.
If we are to avert or, at least, lessen the blows of future financial crises, we need to develop appropriate mechanisms to identify early warning signs and monitor emerging threats. It also requires a strong risk-sensitive culture that encourages thinking outside of the box, as well as testing and enhancing these response processes through tabletop exercises and other simulations to ensure actual resilience in case of a real-world event. But while monitoring early warning signs won’t enable us to anticipate every significant threat to the financial system, these types of mechanisms and focused efforts will help firms maintain a robust and nimble crisis response that can ease the impact of unforeseen events.
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