Pandemic Cited as Top Financial Stability Risk for 2021: DTCC

The Covid-19 pandemic ranks as the greatest threat to global financial stability in 2021, according to a new survey published by DTCC.

DTCC has published the results of its annual Systemic Risk Barometer, finding that nearly one third (31%) of survey respondents cited the Covid-19 pandemic as the top risk for 2021, with two thirds (67%) citing it as a top 5 risk.

More specifically, when asked how the Covid-19 pandemic may affect financial stability going forward, 68% of respondents cited concerns that equity valuations are stretched, reflecting unrealistic expectations about the economy’s recovery.

Nearly the same percentage of respondents (67%) believe that fiscal stimulus measures, while effective at preventing a short-term economic collapse, may have unintended consequences that could prove disruptive to financial stability in the longer run.

A majority of respondents (55%) expect market volatility in 2021 to be substantially higher than historical averages. Similarly, 42% of respondents expect systemic risk and financial instability to be worse in 2021 than in 2020.

“It is safe to say that 2020 can be classified as a year that defied predictions. As the coronavirus spread around the world in March, we saw unprecedented volatility and trade volumes across nearly every asset class,” said DTCC Group Chief Risk Officer Andrew Gray. “Despite these challenging conditions, financial market infrastructures around the world have proved resilient, demonstrating their crucial role in safeguarding financial stability.”

The survey found that cyber risk being cited as a top five risk by 54% of respondents, a decrease from 63% in last year’s survey. However, several respondents said cyber-attacks are becoming increasingly sophisticated, indicating that cyber risk is “always an underlying threat.” Respondents also highlighted the growing prevalence of cyber risk due to increased remote working environments as a result of the pandemic.

Half of survey respondents included the outcome of the US presidential election within their top five risks, highlighting that the election outcome is expected to directly impact trade, fiscal and monetary policies for the next few years. Geopolitical risks and trade tensions were cited as a top 5 risk by 45% of respondents for 2021.

The survey also indicated growing concerns about the risk created by excessive global debt, with 33% of respondents citing this as a top 5 risk, up from 24% last year. The findings reflect concerns that global debt levels were already elevated prior to the Covid-19 outbreak, and have increased due to stimulus measures and monetary policy accommodations, which could present challenges in the future.

The survey results are available for download here.

DTCC conducts its Systemic Risk Barometer each year. See Regulation Asia’s coverage from December 2019, December 2018 and December 2017.

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