Showing posts with label global risks. Show all posts
Showing posts with label global risks. Show all posts
May 26, 2011
Top 30 global financial risks
The Financial Stability Board created a list of 30 large global financial entities that represented to it the most systemically worrisome firms in the world. The chart above tracks a weighted average of the 5Y CDS (or credit risk) of these 30 names. The higher the index, the great the credit risk perceived among the world's most systemically worrisome financial entities. The greater that credit risk, the more concern there should be for another round of potential insolvencies or collapse of the financial industry.
April 20, 2011
Top 25 holders of derivatives total up to 300 Trillion dollars
Interesting charts from the OCC on the institutions holding derivatives and their exposure. Staggering risks that could blow off any day, the worst case is JP Morgan with an incredible 78.6 Trillion Dollar derivatives book [446 dollars in bets for every one dollar in equity] which means that the most they could expect to lose in any given day is $ 71 million only.
Here’s how the U.S. Office of the Comptroller of the Currency [OCC] states how large institutions manage their risk [pg. 8]:
“Banks control market risk in trading operations primarily by establishing limits against potential losses. Value at Risk (VaR) is a statistical measure that banks use to quantify the maximum expected loss, over a specified horizon and at a certain confidence level, in normal markets. It is important to emphasize that VaR is not the maximum potential loss; it provides a loss estimate at a specified confidence level. A VaR of $50 million at 99% confidence measured over one trading day, for example, indicates that a trading loss of greater than $50 million in the next day on that portfolio should occur only once in every 100 trading days under normal market conditions. Since VaR does not measure the maximum potential loss, banks stress test trading portfolios to assess the potential for loss beyond the VaR measure. Banks and supervisors have been working to expand the use of stress analyses to complement the VaR risk measurement process that is typically used when assessing a bank’s exposure to market risk……..[more]”
Here’s how the U.S. Office of the Comptroller of the Currency [OCC] states how large institutions manage their risk [pg. 8]:
“Banks control market risk in trading operations primarily by establishing limits against potential losses. Value at Risk (VaR) is a statistical measure that banks use to quantify the maximum expected loss, over a specified horizon and at a certain confidence level, in normal markets. It is important to emphasize that VaR is not the maximum potential loss; it provides a loss estimate at a specified confidence level. A VaR of $50 million at 99% confidence measured over one trading day, for example, indicates that a trading loss of greater than $50 million in the next day on that portfolio should occur only once in every 100 trading days under normal market conditions. Since VaR does not measure the maximum potential loss, banks stress test trading portfolios to assess the potential for loss beyond the VaR measure. Banks and supervisors have been working to expand the use of stress analyses to complement the VaR risk measurement process that is typically used when assessing a bank’s exposure to market risk……..[more]”
February 26, 2011
Italy tops the Risk Index for 2011
Risk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve courtiers rated as "extreme risk." However, quite surprisingly, only one PIIGS country--Italy which takes the top spot--is in the top 12.
The others include many big economies in Europe - Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).
Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt. One such adjustment has already been seen in the UK and Germany where recent government initiatives have increased the state pension age to encourage people to work for longer as a way to alleviate pressure on public finances.
Certainly Governor of the Bank of Italy, Mario Draghi had this on his mind when today he addressed during a speech in Verona the current situation of Italy. He clearly stated that Italy has not been growing in the last 15 years, salaries are stuck to 80's levels, the unemployment among the Italian youth has reached 30%, the only support young enemployed italians receive is from their families since no dole or benefits exists for them, the savings base which has always been the backbone of italian families' wealth is being drained by the inevitable costs of supporting the unemployed youth well over their 30th birthday. Furthermore widespread corruption and cronyism are practically rotting the society and make impossible any much-needed reform of the inefficient and corrupted economy. No wonder given the current scenario that Italy is at the top of the international investors' worries.
The others include many big economies in Europe - Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).
Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt. One such adjustment has already been seen in the UK and Germany where recent government initiatives have increased the state pension age to encourage people to work for longer as a way to alleviate pressure on public finances.
Certainly Governor of the Bank of Italy, Mario Draghi had this on his mind when today he addressed during a speech in Verona the current situation of Italy. He clearly stated that Italy has not been growing in the last 15 years, salaries are stuck to 80's levels, the unemployment among the Italian youth has reached 30%, the only support young enemployed italians receive is from their families since no dole or benefits exists for them, the savings base which has always been the backbone of italian families' wealth is being drained by the inevitable costs of supporting the unemployed youth well over their 30th birthday. Furthermore widespread corruption and cronyism are practically rotting the society and make impossible any much-needed reform of the inefficient and corrupted economy. No wonder given the current scenario that Italy is at the top of the international investors' worries.
January 27, 2011
Global Risks 2011 - World Economic Forum
As every year at the start of the Davos Forum the annual Global Risks 2011 is issued, this year before the start of the forum.
a full PDF copy of the report is available here
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