Systemic financial risk tops list of threats in 2008

This year holds the highest levels of political and economic uncertainty for a decade, with systemic financial risk topping the list of greatest threats, according to the World Economic Forum’s report, Global Risks 2008.Diversification of risk may have strengthened stability in good times, but systemic financial risk remains acute, researchers warn. Changes in the financial markets over the past two decades have led to the ownership of risks being decentralized, along with greater opportunities for risks to transmit between individual firms and markets making effective risk management all the more critical, a Swiss Re statement in response to the report says.”Under normal market conditions, the financial system has improved its capacity to assume and distribute risk, and has become more stable,” Swiss Re says. But to mitigate the impact of the types of challenges seen in 2007, the report calls for “increased public and private sector collaboration on stress testing, liquidity management, risk assessment and prevention” in order to address what it describes as the “fragmentation of ownership of global risks.”The report focuses on three other risks: food security, supply chain vulnerability and energy.