Signs of a turn for the worse have been accumulating lately — among them, limp jobs reports and a string of downside surprises from major economic indicators on the heels of what had been a good run of consensus beats.
But in the first quarter, at least, risk managers polled by the Global Association of Risk Professionals saw only a slightly greater than normal threat of another breakdown in the U.S. financial system.
In the first installment of a new quarterly index, which was published June 9, an average of the ratings of eight factors on a scale of 1, for "very little risk," to 5, for "very risky," yielded a composite reading of 3.27 (equivalent to an index value of 109), or just above the mean risk rating of 3 (see charts).
When asked to rate the level of systemic risk directly, the 622 respondents, who were surveyed in February, said there was more danger than indicated by combining their assessments of individual factors that could trigger a crisis. But the average of 3.45 (or an index value of 115) under that perspective was still relatively close to the mean level.
GARP said the differential could be explained by respondents assigning greater significance to certain factors than the equally weighted average used in the composite figure, or by the view that risk posed in one area could quickly bleed over into another, especially during periods of stress.
Indeed, the transmission of the European sovereign debt crisis to fears about the state of the global economy and the banking industry has an echo in the factors respondents identified as carrying the greatest risk: leverage topped the list with an index value of 127, followed by 114 each for the overall health of the economy and the financial system.
To be sure, without a historical record linking the index and actual events for comparison, it is difficult to characterize the level of alarm registered. Moreover, the survey gauges perceptions about the prospects for a systemic collapse, a higher bar than mere slackness in the economy, for example.
Interestingly, ratings could vary substantially based on the country where the respondent was based. Executives in China showed the least concern about the possibility that leverage and overall economic conditions could set off a panic in the U.S. Executives in the U.S., meanwhile, expressed the greatest trepidation in their direct estimation of systemic risk at an index value of 124.
[IMGCAP(1)]
