Systemic Risk Centre

How to address sustainability risk in a dangerous universe

While our galaxy is full of planets that could harbour life, there is no evidence that any of them besides our own actually do. This observation suggests that the universe is a dangerous place and that we may be facing civilisational risks that could, in a worst case outcome, result in extinction. Sustainability policy (broadly conceived) deals with these […]

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    Young people exposed to an epidemic have less trust in political institutions for the rest of their lives

Young people exposed to an epidemic have less trust in political institutions for the rest of their lives

It is widely argued (by, inter alia, Fukyuama 2020) that the keys to success in dealing with COVID-19 are “whether citizens trust their leaders, and whether those leaders preside over a competent and effective state.” By way of example, Rothstein (2020) ascribes the greater success at containing the COVID-19 in the Nordic countries than in Italy in part to […]

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    A macro crisis like none before: a call for global coordination

A macro crisis like none before: a call for global coordination

This is based on my personal perspective of financial crises as an academic, financial practitioner (investment banking and investment management) and policy advisor. I have been arguing (since early February) that this crisis is different from any other economic or financial crisis, pandemic, or war. The reason is apparent and simple: the expanse and impact of the crisis across […]

When will the coronavirus pandemic peak?

The 2019–20 coronavirus pandemic is an ongoing pandemic of coronavirus disease (Covid-19), caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). We have carried out some analysis of the daily data on the number of new cases of Covid-19 and the number of new deaths attributed to it for 191 countries as reported to the European Centre for Disease […]

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    Comparing the coronavirus crisis to 2008 is inevitable, but they’re quite different

Comparing the coronavirus crisis to 2008 is inevitable, but they’re quite different

Coronavirus is having a strong impact on the world economy. What about the financial system? Is a systemic financial crisis likely, perhaps along the lines of the crisis 12 years ago in 2008, or even the Great Depression of the 1930s?

There are certainly similarities: widespread bankruptcies, liquidity shortages, large losses and some financial institutions may fail. Still, that in itself does […]

Signalling sincerity in stakeholder capitalism

Milton Friedman versus Klaus Schwab – it was a battle between two world views. In 1970, Friedman wrote his seminal essay on the role of the firm effectively arguing that the “business of business is business” and that wider stakeholder considerations can be value-destructive. In 1973, Klaus Schwab’s Davos Manifesto argued that management must also serve employees and society, […]

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    There is a ‘good’ reason for EU banks to hold their own country’s sovereign debt

There is a ‘good’ reason for EU banks to hold their own country’s sovereign debt

Is it possible to attribute the banks’ home bias in sovereign exposure to something beyond their externally-imposed (such as moral suasion) or internally-distorted (such as risk-shifting) incentives? Despite the so-called doom loop between the two, could the relationship of banks with their domestic governments have an underexplored silver lining?

These are the questions I pursue in a recent paper. By […]

The efficiency of the IPO market: homo economicus lives

In the initial public offering (IPO) market, sophisticated issuers with considerable sums at stake acquire underwriting services from a large number of capable and highly competitive investment banks. Neoclassical economics implies that such a market will (well, really, must) reach an efficient equilibrium. Yet, in practice, the IPO market has a number of highly unusual features that has led […]

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    Crises in the financial markets tend to bring liberalisation to a temporary halt

Crises in the financial markets tend to bring liberalisation to a temporary halt

Large economic and political turbulence occurs in the aftermath of financial crises. What starts as panic in a single financial market or institution usually propagates rapidly to other agents of the economy and might necessitate an urgent and decisive reaction from policymakers. However, it is difficult to predict, a priori, whether the reaction of policymakers to the crisis would […]

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    Brexit will probably cause disruption in markets, but systemic risk is unlikely

Brexit will probably cause disruption in markets, but systemic risk is unlikely

With less than two years until Britain leaves the EU, the implications of Brexit for financial stability are of some concern. Two key central bankers have reached opposites conclusions, with Mark Carney worried and Mario Draghi more sanguine. Broadly in line with Draghi, we think Brexit should mostly decrease systemic risk, albeit with a potential for an increase.

Brexit will […]

Managing risk in the age of disruption

The context of risk management and risk preparedness has changed in recent years.

Structural disruption

We are living through a period of multi-dimensional disruption that is often dubbed as the fourth industrial revolution. Developments in extreme connectivity and extreme automation have consequences beyond the world of technology: business models, industries, markets, regulatory, and governance regimes have been thrown into a flux. […]

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    Geekland: STEM knowledge is needed to apply for 1 in 6 non-tech UK jobs

Geekland: STEM knowledge is needed to apply for 1 in 6 non-tech UK jobs

In the UK, less than half of science, technology, engineering, and mathematics (STEM) graduates work in so-called ‘STEM occupations’ (such as scientists or engineers). If, as is often thought, all recruiters in ‘non-STEM’ occupations (for example, graphic designers or economists) neither require nor value science and technology skills, and simply like hiring science graduates for their problem solving and […]

Low volatility makes a financial crisis more likely

Received wisdom maintains that financial market volatility has a direct impact on the likelihood of a financial crisis. Perhaps the best expression of this is Hyman Minsky’s (1992) hypothesis that economic agents observing low financial risk are induced to increase risk-taking, which in turn may lead to a crisis. This is the foundation of his famous statement that ‘stability […]