Ten years since the implosion of Lehman Brothers, the stability and resilience of the financial system has improved significantly. However, more needs to be done given an ever-widening array of interconnected risks.
In a recent publication, the Depository Trust & Clearing Corporation (DTCC) identifies a number of new risks since 2008 – and none of these risks should come as a surprise. One risk is the exposure associated with the proliferation and increasingly opaque nature of certain exchange-traded funds. A second risk is cybersecurity, which has grown to the point where it may have become the most important near-term threat to financial stability. A third risk is FinTech; while not a source of systemic risk at this point, it should be carefully monitored and supervised to balance the associated risks and rewards.
The DTCC identifies a series of actions to tackle the ever-widening array of interconnected risks. One action is to boost regulatory harmonisation and cooperation among all stakeholders to harness the full potential of derivatives trade repositories as early warning signals for systemic risk build-ups. However, this action confronts itself with a challenge, namely the increasing pressure that policymakers are facing from financial services firms to roll back post-crisis regulations, as noted by IMF Managing Director Christine Lagarde.
Despite the many enhancements that have been implemented over the past 10 years, the nature of risk has evolved dramatically since 2008. Some of the most dangerous and challenging risks we face today barely registered a decade ago, and the next crisis might be fundamentally different than we can envision right now,” said Michael Leibrock, DTCC Managing Director, Credit and Systemic Risk.