Study: Majority of Institutions Vulnerable to Sudden Swings in Volatility

by CFO Innovation Asia Staff, 28 June 2012

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topics:
Finance and Banking Risk Management

tags:
Economist Intelligence Unit financial crisis risk management SunGard

A majority of bankers, insurers and asset managers, as well as finance executives at non-financial companies, consider their organisations to be vulnerable to exceptional or sudden swings in volatility, according to a global survey conducted by the Economist Intelligence Unit for SunGard.

Following the 2008 financial crisis, regulators have made understanding and managing volatility risk a top priority. For example, the U.S. Federal Reserve and the European Banking Authority have introduced “stress tests” to analyse whether large bank holding companies and banks, respectively, would have sufficient capital in times of severe economic and financial stress, as well as to analyse risk across the financial system.

This scrutiny, in addition to other regulatory changes, economic uncertainty and weak market conditions, are creating concern about volatility risk in the business or the economic environment, as indicated by executives who responded to this survey, particularly those in North America and Western Europe.

The report finds that more than two in five respondents feel their firms are under-investing in risk management tools that could help them cope with volatility.

Despite regulatory pressure and a greater awareness of risk, more than half of the respondents say their company conducts stress tests or scenario analysis to check their ability to cope with volatility just once a year or every six months at best. That means the majority of organizations surveyed are exposed to fast-moving developments.

Only 17 percent of respondents say their company proactively takes measures to protect their clients from volatility risk and nearly one in three say they either wait for instruction from their clients, or they do not have any system in place to specifically shield their clients.

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