Report: Today's Risk Managers Exhibit Overconfidence
Security • 26th May, 24
2023 undeniably etched its place in financial services history, a year marked by accelerating change and a precarious financial climate. It brought calamity in the form of largely unforeseen bank failures – five of them, in fact, including Silicon Valley Bank, the largest such collapse in 15 years. But it also showcased remarkable economic resilience amid a tapestry of market relationship changes, geopolitical shifts and pervasive uncertainty.
Last year’s defining feature was perhaps the elusive recession that never materialized. Despite headwinds such as an inverted yield curve, surging corporate bankruptcies, heightened interest rate volatility, persistent inflation and, yes, bank failures, the economy has remained surprisingly robust. This outcome echoes the adage that “the market climbs the wall of worry," a truth particularly evident, albeit in an unconventional manner.
The ascent in equity markets, predominantly propelled by the exceptional performance of a select few tech giants, the “Magnificent Seven,” has masked the struggles faced by the broader market, including the rest of the large caps and small caps. This divergence was not limited to financial markets. It also manifested in the banking industry. The fallout from Silicon Valley Bank’s failure has affected banks asymmetrically, highlighting a stark contrast between the resilient and the vulnerable.
On a macro level, this divergence extends globally, with the U.S. economy rebounding swiftly from COVID-19’s shocks compared to its G7 counterparts. The disparities, especially when juxtaposed with the European and emerging market trends, underscore the bifurcated nature of the current macro landscape.
