http://capitalcontext.com/2011/05/25/systemic-risk-elevated/
With China raising rates (and a housing bubble seemingly bursting), Japanese stress from the vicious circle of the tsunami and macroeconomy spiralling with a weak demographic, European banks clearly burdened by mismarked sovereign debt on their books, and a US financial system that continues to practice extend-and-pretend all the time hosuing weighs heavy and TLGP debt must be refinanced, it would make sense that risk is elevated. It should be clear from the chart above that not only is systemic financial risk rising but globally it is becoming more correlated – a factor that should be of great concern for both central bankers and risk managers attempting to mitigate any insolvencies. The apparent realization, of an increasingly inter-linked and even bigger financial system since the financial crisis, among credit market participants is a signal not to be ignored.
We have not seen this reflected in the typical measures such as Libor, OIS etc which became so prevalent among the media during the crisis and the simple reason is the amount of government overlay of simple impliciit guarantees that seem so evident in those markets. This index is transaparent and offers a very clear market interpretation of the stress the global financial system is under. All too often, we have found our old agage that credit anticipates and equity confirms to be true. Keeping a close eye on this financial stability index over the course of the summer as European stress continues will be important.
With China raising rates (and a housing bubble seemingly bursting), Japanese stress from the vicious circle of the tsunami and macroeconomy spiralling with a weak demographic, European banks clearly burdened by mismarked sovereign debt on their books, and a US financial system that continues to practice extend-and-pretend all the time hosuing weighs heavy and TLGP debt must be refinanced, it would make sense that risk is elevated. It should be clear from the chart above that not only is systemic financial risk rising but globally it is becoming more correlated – a factor that should be of great concern for both central bankers and risk managers attempting to mitigate any insolvencies. The apparent realization, of an increasingly inter-linked and even bigger financial system since the financial crisis, among credit market participants is a signal not to be ignored.
We have not seen this reflected in the typical measures such as Libor, OIS etc which became so prevalent among the media during the crisis and the simple reason is the amount of government overlay of simple impliciit guarantees that seem so evident in those markets. This index is transaparent and offers a very clear market interpretation of the stress the global financial system is under. All too often, we have found our old agage that credit anticipates and equity confirms to be true. Keeping a close eye on this financial stability index over the course of the summer as European stress continues will be important.
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