The news: The NY Fed’s Financial Stability Report surveyed 26 industry experts from broker-dealers, investment firms, and universities between August and October to create a list of the most-cited financial risks of 2022.
What are the top risks?
Inflation and monetary tightening
- This risk topped the list as respondents said inflation has been more persistent than anticipated and monetary policy has been more restrictive than expected.
- Some fear that a pause in monetary tightening or a pivot to looser policy will cause another wave of tightening down the line that will cause major market volatility.
- Consumers worldwide are seeking assistance from their financial institutions to help them overcome the downturn, but many don’t believe they’re getting the help they need.
War in Ukraine/geopolitical risks
- Some respondents believe the conflict in Ukraine will continue to escalate in 2023.
- The conflict is contributing to the worsening economic outlook in Europe. Many fear the deterioration will spill over into the US through trade and the financial markets.
- Some respondents also cited the increasing tensions between China and Taiwan, and speculated that any US involvement would worsen supply chain pressures and negative investor sentiment.
High energy prices
- High energy prices, especially in Europe, have been fueled by the geopolitical tensions in Ukraine. This is likely to continue and potentially affect other non-European countries as well.
- The European Central Bank has urged banks to analyze the impact of a complete gas stoppage and to prepare for the worst.
Underregulated nonbanks
What’s surprising?
Cryptocurrency
- Cryptocurrency didn’t make the top 10 potential risks, despite a chaotic year that saw the collapse of many prominent crypto exchanges.
- The crypto winter looks to be a long way from thawing, but as the crypto markets recover from the FTX fallout, regulators are feeling increased pressure to set industrywide standards.
Cyberattacks
- Cyberattacks also failed to make the top 10, though ransomware poses a significant and increasing threat to banks.
- US banks and financial institutions spent almost $1.2 billion in ransomware-related payments in 2021—nearly triple the previous year, according to the US Treasury Department.
- Cybersecurity was a leading concern for US bank executives polled this year by Cornerstone Advisors, second only to attracting qualified talent.