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Industry debate concludes lack of leadership is the main barrier to G20 spotting the next financial crisis


October, 2010.  At the FS Club last week over 40 attendees from top financial institutions, alongside representatives from the Bank of England, the FSA and academia, concluded - by a margin of three to one - that control of systemic risk is a long way off.

The conclusion highlighted the fact that the blueprint for the new systemic risk control infrastructure is no closer to being available now than it was when the G20 agreed it would reshape the regulatory system back in April 2009.  This means that supervisors’ ability to spot the next financial crisis and prevent another Lehman-like event, could, in reality, be decades away. 

PJ Di Giammarino, CEO of the regulatory think-tank JWG and moderator of the debate, commented “It was clear that the supervisors are concerned about how to achieve the systemic risk aims prescribed by G20 politicians.  As it stands they have nowhere near enough information to fulfil their remit and the models in use today have significant flaws.”

“Whilst all agreed that resources devoted to this conundrum are insufficient, there was clear sentiment in the room that the constraint is not money, but rather leadership, and getting the right people to develop the right tools that will be used in the right ways.  We can’t build this from the bottom-up; a top-down methodology is required.”  Di Giammarino concluded.

The FS Club discussion centred on the issues raised in the recently released JWG and Paradigm Risk report ‘Achieving supervisory control of systemic risk’, which concludes a complete rethink, redesign and retooling of the way both supervisors and the industry manage and share their risk information is required.

As such, the session focused on the following impediments to change:

►      The increasing frequency of systemic risks

►      Gaps in academic research on how to spot systemic risks

►      Lack of practical mechanisms to assess interconnectedness

►      The requisite standards and quality of the data required

►      The burden that will be placed on financial institutions if control is managed ad hoc

►      The multi-disciplinary collaboration required for success

►      The disconnects between UK, EU and global policy objectives

►      Computational power required to aggregate the information

►      The structure of the information required to support supervisory judgements

►      The absence of a G20 systemic risk control implementation programme.

ENDS

For press enquiries please contact:

Louisa Excell, Hotwire on behalf of JWG
Louisa.excell@hotwirepr.com +44 (0) 20 7608 8350

For further information in relation to the report please contact:

            PJ Di Giammarino, JWG
            pj@jwg-it.eu +44 (0) 7811 430 503

 For more information, see www.jwg-it.eu/SyRiG 

JWG seeks to be recognised by regulators, financial institutions and technology firms as the independent analysts to help determine how the right regulations can be implemented in the right way.  Its status as an independent think-tank focusing on financial services regulation permits collaboration across the industry without serving the interests of any constituent over another. For more information see www.jwg-it.eu



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