Put 16 senior-level risk managers from across the securities industry in a room and what do you get? A lot of interesting and sometimes eye-opening talk about systemic risk, cybersecurity, shadow banking, interconnectedness and the impact of new industry regulations.
All these issues - and more - came up in the course of The Depository Trust & Clearing Corporation’s (DTCC’s) first Systemic Risk Roundtable, which was held at DTCC’s Jersey City office in June. The Roundtable is part of DTCC’s larger industry-wide engagement initiative focused on systemic risk, which includes meetings with regulators globally, original research and white papers and the bi-annual DTCC Systemic Risk Barometer survey that tracks industry trends.
“This roundtable is an important feedback loop to help DTCC prioritize its risk management resources around those risks deemed most critical by industry participants,” said Michael Leibrock, DTCC Managing Director and Chief Systemic Risk Officer. “These types of exchanges give us a deeper understanding of high-priority issues and enable us to address risks in a more holistic manner.”
During the inaugural meeting of the group, comprised of 11 DTCC clients, roundtable participants identified a number of current and emerging systemic risk concerns. Top systemic risks cited by the group included cybersecurity, geopolitical concerns and the impact of new regulations. Those risks were also listed as top concerns in the recent DTCC Q1 2015 Systemic Risk Barometer survey.
The group debated whether the impact of new regulations is “truly” a systemic risk in its own right. Participants noted that while the issue of new regulations may not necessarily represent a systemic risk, it is forcing banks to change business models and reevaluate business strategies. Capital considerations (the amount of capital required and the return on that capital) are among the most important factors driving that process.
Participants were also very interested in discussing DTCC’s views on CCP concentration risk and its approach to Recovery and Resolution planning, as well as related topics covered in DTCC’s June 2015 whitepaper, CCP Resiliency and Resources.
The group also touched on some of the newly emerging or growing systemic risks, such as shadow banking, interconnectedness and decreasing liquidity in the fixed income space.
One Roundtable participant voiced surprise at the low ranking interconnectedness received in the survey, given how quickly financial disruptions can propagate and cause widespread ripple effects.
“Interconnectedness is one of the broadest and most complex risks the industry is facing today because it has so many dimensions,” said Adrien Vanderlinden, Vice President and Team Leader for DTCC’s Systemic Risk Office. “An incident that negatively impacts one firm can be amplified across the wider industry due to the Interconnectedness of the financial system.”
Vanderlinden noted the group will discuss interconnectedness risks at future meetings, which is encouraging given that interconnectedness will be the topic of DTCC’s next Systemic Risk white paper, scheduled to be released later this year.
Leibrock plans to hold follow-up meetings on specific topics to continue DTCC’s engagement with clients on systemic risk issues.
“It helps to hear directly from experts on the evolving nature of systemic risk and its impact on the industry,” Leibrock said. “The differing points of view demonstrate the need for forums like this to share information and bring greater focus to the industry’s approach to managing and mitigating systemic risk.”