DTCC: The next crisis will be different
14 September 2018 New York
Image: Shutterstock
The next crisis will be different, according to a new paper published by The Depository Trust & Clearing Corporation (DTCC).
In the paper, “The Next Crisis will be Different: Opportunities to Continue Enhancing Financial Stability 10 Years after Lehman’s Insolvency”, DTCC identified a series of actions to tackle new challenges that have emerged related to the macroeconomic environment, market-related risks and the advent of new technologies.
These include expanding central clearing for both cash and derivatives markets to more fully take advantage of the risk management benefits provided by central counterparties and boosting regulatory harmonisation and co-operation among all stakeholders to harness the full potential of derivatives trade repositories as early warning signals for systemic risk build-ups.
DTCC also suggests improving risk transparency by globally mandating the use of legal entity identifiers (LEIs) in regulatory reporting and further optimising and accelerating the US equity settlement cycle beyond T+2 to further reduce the exposure associated with unsettled trades.
DTCC further commented that ensuring enterprise data management capabilities become foundational to the risk management framework of financial firms is also crucial, as well as comparing the risk landscape of 10 years ago with today’s threats, the DTCC called for a holistic approach to addressing an ever-widening array of interconnected risks.
The DTCC goes on to warn that cybersecurity concerns, while not new, have grown to a point where they may have become the most important near-term threat to financial stability.
Finally, the paper suggests that while fintech developments are not a source of systemic risk at this point, they should be carefully monitored and thoughtfully supervised to balance the associated risks and rewards.
Michael Leibrock, managing director of credit and systemic risk at DTCC: “Despite the many enhancements that have been implemented over the past 10 years, the nature of risk has evolved dramatically since 2008.”
He added: “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.”
In the paper, “The Next Crisis will be Different: Opportunities to Continue Enhancing Financial Stability 10 Years after Lehman’s Insolvency”, DTCC identified a series of actions to tackle new challenges that have emerged related to the macroeconomic environment, market-related risks and the advent of new technologies.
These include expanding central clearing for both cash and derivatives markets to more fully take advantage of the risk management benefits provided by central counterparties and boosting regulatory harmonisation and co-operation among all stakeholders to harness the full potential of derivatives trade repositories as early warning signals for systemic risk build-ups.
DTCC also suggests improving risk transparency by globally mandating the use of legal entity identifiers (LEIs) in regulatory reporting and further optimising and accelerating the US equity settlement cycle beyond T+2 to further reduce the exposure associated with unsettled trades.
DTCC further commented that ensuring enterprise data management capabilities become foundational to the risk management framework of financial firms is also crucial, as well as comparing the risk landscape of 10 years ago with today’s threats, the DTCC called for a holistic approach to addressing an ever-widening array of interconnected risks.
The DTCC goes on to warn that cybersecurity concerns, while not new, have grown to a point where they may have become the most important near-term threat to financial stability.
Finally, the paper suggests that while fintech developments are not a source of systemic risk at this point, they should be carefully monitored and thoughtfully supervised to balance the associated risks and rewards.
Michael Leibrock, managing director of credit and systemic risk at DTCC: “Despite the many enhancements that have been implemented over the past 10 years, the nature of risk has evolved dramatically since 2008.”
He added: “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.”
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