NEWS PROVIDED BYBloomberg
Dec 14, 2022, 08:30 ET
NEW YORK, Dec. 14, 2022 /PRNewswire/ –Market, credit, and liquidity risk are top of mind for financial institutions as 2023 approaches, according to a new global survey conducted by Bloomberg. The survey polled over 200 senior risk executives during Bloomberg events on ‘Managing Risk in a New Era of Uncertainty’ held in nine locations globally between September and November 2022.
The findings reveal market risk to be the top concern for the year ahead by 39% of respondents. This was closely followed by credit risk (31%) and liquidity risk (24%)—two areas that have increased in focus over the last 12 months driven by interest rate hikes, higher inflation, increased volatility, and widening spreads.
When asked which credit risk indicators have been the most useful for managing market events over the last year, respondents cited using point-in-time factors including credit default swaps (23%) and news (14%), which are quick to capture the impact of market changes but are noisy. More traditional credit risk indicators, which use slower moving data to produce through-the-cycle credit measures, included credit ratings (13%) and company fundamentals (11%). Meanwhile, 13% of respondents relied on a combination of these indicators through the development of their own internal credit scores.
“To proactively manage credit risk, firms need a surveillance framework across a broad range of factors, and technology has a key role to play—especially when it comes to turning noisy market factors into meaningful signals,” said Zane Van Dusen, Global Head of Risk & Investment Analytics Products at Bloomberg. “Market participants are usually aware of potential credit issues ahead of any rating changes. With the right technology and data, risk managers can anticipate downgrades and credit defaults at-scale.”
The next greatest concern for respondents was liquidity risk. When asked how their liquidity risk management frameworks have changed, implementing additional scenario analysis (34%) was the primary update. The next most cited response was no significant changes to liquidity risk management frameworks (29%), indicating firms may be riding out the storm and waiting to see how their current systems perform.
“While liquidity risk ranked as the third concern at the time of this survey, it has quickly become a larger priority for US asset managers,” said Van Dusen. “Proposed changes to SEC Rule 22e-4 have brought concerns about liquidity risk back to the fore as firms try to assess the impact on the liquidity profile of their funds. We expect this to be a larger focus throughout 2023.”
Longer term climate risks are lower on the agenda but remain a concern since an earlier Bloomberg survey was conducted in May this year, with just 5% of respondents saying this was a key concern. However, the vast majority of firms (90%) are making progress incorporating climate risk into their analysis with just 10% saying they have no plans to integrate.
Bloomberg provides a number of comprehensive solutions that enable clients to integrate risk management throughout the trading and investment cycle. This includes Bloomberg’s award-winning Liquidity Assessment solution (LQA), Multi-Asset Risk System (MARS), and its recently launched Market Implied Probability of Default (MIPD) product, which quantitatively assess market, liquidity, and credit risk based on the latest market activity.
To view the full results of the survey, please click here.
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SOURCE Bloomberg
