Category Archives: systemic risk

3/5/20: Financial Strength Across Emerging Markets


A somewhat simplified, but nonetheless telling heat map of financial strengths and vulnerabilities across emerging market/middle income economies via the Economist:


I have outlined European economies included (for some strange reason, the Baltics are not in the assessment, neither are Bulgaria, Moldova, etc). The top 9 as well as those ranked 11th, 12th and 15th are economies with no risk category at or below 'moderate'.  The bottom 15 have no risk category within a 'safety' zone.

Have fun with these...

5/1/20: EU’s Latest Financial Transactions Tax Agreement


My article on the proposed EU-10 plan for the Financial Transaction Tax via The Currency:


Link: https://www.thecurrency.news/articles/5471/a-potential-risk-growth-hormone-what-the-financial-transaction-tax-would-mean-for-ireland-irish-banks-and-irish-investors or https://bit.ly/2QnVDjN.

Key takeaways:

"Following years of EU-wide in-fighting over various FTT proposals, ten European Union member states are finally approaching a binding agreement on the subject... Ireland, The Netherlands, Luxembourg, Malta and Cyprus – the five countries known for aggressively competing for higher value-added services employers and tax optimising multinationals – are not interested."

"The rate will be set at 0.2 per cent and apply to the sales of shares in companies with market capitalisation in excess of €1 billion. This will cover also equity sales in European banks." Pension funds, trading in bonds and derivatives, and new rights issuance will be exempt.

One major fall out is that FTT "can result in higher volumes of sales at the times of markets corrections, sharper flash crashes and deeper markets sell-offs. In other words, lower short-term volatility from reduced speculation can be traded for higher longer-term volatility, and especially pronounced volatility during the crises. ... FTT is also likely to push more equities trading off-exchange, into the ‘dark pools’ and proprietary venues set up offshore, thereby further reducing pricing transparency and efficiency in the public markets."

28/9/19: Evidence of Systemic Risk from Major Cybersecurity Breaches


In our post for Columbia Law School's CLS Blue Sky Blog, myself and Shaen Corbet explain in non-technical terms our ground-breaking findings on systemic nature of cybersecurity risks in financial markets:


Our study is the first in the literature showing evidence of systemic contagion from cyber attacks on one company to other companies and stock exchanges.

Based on these findings, we have a chapter forthcoming in an academic volume on the future of regulation, proposing a novel mechanism for regulatory detection, monitoring and enforcement of cybersecurity risks. We will post this chapter when it goes to print, so stay tuned.

20/9/19: New paper: Systematic risk contagion from cyber events


Our new paper, "What the hack: Systematic risk contagion from cyber events" is now available at International Review of Financial Analysis in pre-print version here: https://www.sciencedirect.com/science/article/pii/S1057521919300274.

Highlights include:

  • We examine the impact of cybercrime and hacking events on equity market volatility across publicly traded corporations.
  • The volatility generated due to cybercrime events is shown to be dependent on the number of clients exposed.
  • Significantly large volatility effects are presented for companies who find themselves exposed to hacking events.
  • Corporations with large data breaches are punished substantially in the form of stock market volatility and significantly reduced abnormal stock returns.
  • Companies with lower levels of market capitalisation are found to be most susceptible to share price reductions.
  • Minor data breaches appear to be relatively unpunished by the stock market.

15/6/18: Italian High Yield Bonds and Markets Exuberance


Nothing illustrates the state of asset valuations today better than the junk bonds tale from Italy. Here is a prime example from the Fitch ratings note from June 7:

"...longstanding Italian HY issuer and mobile operator WindTre sequentially refinanced crisis-era unsecured notes at 12% coupons into 3% area coupons by January 2018, despite losing cumulative revenue and EBITDA of 30% and 25%, respectively, and re-leveraging from 4x to 6x."


Give this a thought, folks:

  1. We expect rates to rise in the future on foot of ECB unwinding its QE, the Fed hiking rates and monetary conditions everywhere around the world getting 'gently' tighter;
  2. Euro is set to weaken in the longer run on foot of Fed-ECB policies mismatch;
  3. WindTre issues replacement debt, increasing its leverage risk by 50%, as its revenue falls almost by a thirds and its EBITDA falls by a quarter;
  4. WindTre operates in the market that is highly exposed to political risks and in an economy that is posting downward revisions to growth forecasts.
And the investors are piling into the company bonds, cutting the cost of debt carry for the operator from 12 percent to 3 percent. 

Per FT (https://www.ft.com/content/31c635f4-64df-11e8-a39d-4df188287fff): "Lending to corporates rose 1.2 per cent in the year to February 2018, according to the Bank of Italy, and the average interest rate on new loans was 1.5 per cent — a historic low."



Say big, collective "Thanks!" to the folks at ECB, who worked hard to bring us this gem of a market, so skewed out of reality, one wonders what it will take for markets regulators to see build up of systemic risks.