Enhancing market transparency to mitigate systemic risk more effectively in the global capital markets was a major focus of discussion among top financial industry leaders and policy makers at the annual Frankfurt Finance Summit last month.
The high-level forum, hosted by German industry trade group, Frankfurt Main Finance to promote dialogue on key issues surrounding European financial and economic reform, was attended by Larry Thompson, DTCC Managing Director and General Counsel, who served as a panelist on the topic of Macroprudential Risk Management.
“We need to be able to forecast where systemic risk is coming from in order to figure out appropriate measurements for quantifying it,” Thompson said. “This will require tremendous coordination among global regulators if we’re going to effectively implement the tools designed to identify and mitigate systemic risk.”
Thompson’s panel kicked off with introductory remarks from Stefan Ingves, a Member of the European Systemic Risk Board, and quickly turned to the topic of systemic risk management and the implications for the broader financial marketplace. The panelists agreed that financial stakeholders were still a long way off from accurately identifying or gauging systemic risk developing in the system.
Thompson cited legal entity identifiers and trade repositories as examples of important industry tools that have been designed to enhance market transparency. “It is essential that regulators have the tools to analyze and transform data provided to them in a fashion that is of value to prudential and market regulators as well as market participants.”
The panel also discussed how the lack of trust in the financial system – coupled with “herd mentality” – led to the devastating run on banks in 2007 and 2008.
“If you’re going to stop the herd from moving in a certain direction, you must have transparency in the system,” Thompson opined. “You need to have the tools in place so that you can fully understand what are we trying to measure and ensure that the public and regulators trust the information they are receiving.”
The event, which brought together roughly 100 representatives from throughout the industry and European policymaking circles, included a keynote address by Michel Barnier, the European Commissioner for Internal Market and Services, including financial services, who focused on the state of the European Banking Union.
To watch the complete session on Macroprudential Risk Management, please click here.