The Bankwatch

Tracking the consumer evolution of financial services

Global risks that affect everything for years to come

McKinsey provided a list here of the latest risk assessments done by three groups.  I had the WEF one already, so its was interesting to review and compare the three.

  1. World Economic Forum Global Risks 2010 (In collaboration with PricewaterhouseCoopers Global Thought Leadership group)
  2. Economist Intelligence Unit’s latest global business risk assessment
  3. Eurasia Group, Top Risks and Red Herrings for 2010

Relevance to Bankwatch:

This is a sobering list (see below for complete table of contents of all three.  The news today is full of:

  • Greece, Portugal and Spain country risk problems
  • government debt, particularly US, UK and Japan
  • consumer debt – all western countries, with special mention to Canada, UK and US
  • possibility (likelihood) that we are in the midst of a commodity price bubble
  • post crisis statistical recovery associated with a continued consumer recession (approximate quote from Larry Summers at Davos)
  • total failure of confidence and trust in banks and their management (Dimon, Lewis, RBS etc)
  • US government deficit at unprecedented levels
  • potential for catastrophic economic collapse in China (asset bubble, unsustainable government spending
  • polarisation of banks into zombie /utility banks and risk takers
  • deflation resulting from developed countries and their population deleveraging

The list could go on, and we all see these things through our own lens.  These are the things we know about.  If we look down the list below, and pick some outlier events such as

  1. US/ China trade war,
  2. Muslimisation of Turkey and alliance with Syria and Iran,
  3. a real global pandemic

Even one such event would have dramatic impacts on confidence, currencies, interest rates and therefore inflation/ prices.  Banks and there customers are not immune whether in UK, US, or Switzerland.  The results of the risk outcomes will have effects on us all. 

I keep going back to Homer-Dixons The Upside of Down.  That book set the tone for the 21st Century for me, and provides a backdrop for financial planning, and therefore bank planning for its customers.  The view of the last 20 years to buy stock and wait is no longer an adequate plan.  Not a good time to be laboured with expensive infrastructure, or to be increasing that infrastructure.

Lots to think about. 

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Here is a summary of the coverage of each report.

World Economic Forum – Global Risk Report 2010

Economic Risks

  1. food price volatility
  2. oil price spikes
  3. major fall in US $
  4. sowing Chinese economy (< 6%)
  5. fiscal crises
  6. asset price collapse
  7. retrenchment from globalisation (developed)
  8. retrenchment from globalisation (emerging)
  9. burden of regulation
  10. underinvestment in infrastructure

Geopolitical Risks

  1. international terrorism
  2. nuclear proliferation
  3. Iran
  4. North Korea
  5. Afghanistan instability
  6. transnational crime and corruption
  7. Israel- Palestine
  8. Iraq
  9. global governance gaps

Environmental Risks

  1. extreme weather
  2. drought and desertification
  3. water scarcity
  4. NatCat cyclone
  5. NatCat earthquake
  6. NatCat inland flooding
  7. NatCat coastal flooding
  8. air pollution
  9. biodiversity loss

Societal Risks

  1. pandemic
  2. infectious diseases
  3. chronic diseases
  4. liability regimes
  5. migration

Technological Risks

  1. Critical information infrastructure (cli) breakdown
  2. nanoparticle toxicity
  3. data fraud/ loss

Economist Intelligence Unit

Growth without jobs
The global economy is set to endure a "jobless" recovery, but governments are ill-equipped to deal with the economic and political consequences of entrenched high unemployment.

Austerity and unrest
Moves by many countries to introduce fiscal austerity measures in 2010-11 could spark social unrest, particularly in eastern Europe but also in the developed world.

Shaky foundations
We have fractionally raised our forecast for global economic growth in 2010, but we remain concerned that unsustainable factors are driving much of the recovery.

Preventing the next crisis?
The process of reforming global financial regulation is well under way, but policymakers are reluctant to demand measures that could undermine the economic recovery.

Key issues for 2010
The world economy is improving, but the fading of short-term factors that have supported recovery thus far will feature among the key issues to watch for in 2010.

COP-out
The UN climate-change summit in Copenhagen has ended in failure. It has produced a heavily diluted agreement that omits concrete targets and lacks unanimous support.

A global carbon market?
Carbon trading is at the centre of proposals to limit greenhouse-gas emissions. But for trading to achieve useful scale, a global benchmark for carbon prices is needed.

Bubble fears
Rising global risk appetite and the spillover of liquidity from the developed world are creating conditions for asset-price bubbles in emerging markets.

Eurasia Group

1 – US-China relations

2 – Iran

3 – European fiscal divergence

4 – US financial regulation

5 – Japan

6 – Climate change

7 – Brazil

8 – India-Pakistan (no, not Afghanistan)

9 – Eastern Europe, elections & unemployment

10 – Turkey

Written by Colin Henderson

February 4, 2010 at 21:18

Posted in Banking Strategy

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