Financial Market

Financial System Survey highlights—Spring 2022

The top three risk categories are:

  1. External risks—these are predominantly the risk of a cyber incident. Banks and insurers cited cyber incidents as the most important risks. Respondents are managing the risk of a cyber incident through:

    • continued investments in cyber security
    • employee training
    • outsourcing some information technology processes


    In addition to threats to their organizations, some respondents expressed concerns about a successful cyber attack from Russia on critical infrastructure as retaliation for economic sanctions.

  2. International economic and political risks—these are mainly geopolitical tensions. Asset managers and pension funds cited geopolitical tensions as the most important risks. The most frequently mentioned geopolitical tensions related to the Russian invasion of Ukraine. Respondents reported no or minimal direct exposure to Russia, but they voiced concerns about geopolitical spillovers, such as China:

    • supporting Russia and facing economic sanctions
    • invading Taiwan


    Some were also concerned that greater uncertainty around geopolitical tensions could increase the risk of a price correction in high-yield debt and emerging markets. Respondents have intensified their monitoring of their exposures to high-yield debt and emerging markets; however, they have not changed their asset allocation.

  3. Domestic macroeconomic risks—high inflation and low economic growth were the most frequently mentioned domestic macroeconomic risks. Some respondents are managing these risks through:

    • increased inflation protection, including through their exposure to private assets
    • diversifying asset exposures to reduce market risks


    Some respondents were concerned that tensions between Russia and Ukraine could further increase inflation and slow growth. This echoes the discussion in the April 2022 Monetary Policy Report about how Russia’s invasion of Ukraine has:

    • reduced global growth
    • increased inflation through higher commodity prices
    • further disrupted supply chains

The top three risks organizations face are also relevant to the broader financial system:

  • As discussed in the 2021 Financial System Review, a successful cyber attack on a major financial institution or financial market infrastructure could cause system-wide disruptions because the financial system is interconnected.
  • Geopolitical tensions could trigger a deterioration of financial conditions and a repricing of risk assets globally. For instance, the April 2022 Monetary Policy Report discusses how the war in Ukraine initially led to:

    • corporate credit spreads widening
    • equity indices dropping sharply

  • A sharp rise in expected inflation could trigger a repricing of risk assets and, potentially, a recession. For details, see the section on potential risks from monetary policy normalization.

New developments

Respondents also reported new developments that their organizations have started monitoring within the past year. Many of these were similar to their top three risks, such as geopolitical risks and high inflation. Other new developments included:

  • Fintech or open banking—Some respondents raised concerns about losing market share if they cannot compete or partner with fintech companies.
  • Digital and cryptoassets—Some respondents cited disintermediation of the banking sector as well as cyber threats and fraud as a concern. Others mentioned the volatility of cryptoassets.
  • Talent retention and attraction—Some respondents reported facing challenges attracting and retaining employees.

Potential risks from monetary policy normalization

We invited market participants to share their views on potential risks from monetary policy normalization. We provided respondents with two scenarios that differ from their expected path. We then asked them to select the one that would most negatively affect their organization and tell us how:

  • the scenario would affect financial markets
  • they have prepared for the scenario
  • they would adjust their strategies if the scenario occurred

Impact of an unexpected monetary policy normalization scenario

Among respondents, 92% reported that an unexpected monetary policy normalization scenario would negatively affect their organization (Chart 4).

  • Among respondents, 61% believed faster-than-expected normalization would result in the most severe negative impact. They believed this scenario could lead to:

    • reduced demand for goods and services
    • higher unemployment
    • a possible recession

  • Among respondents, 31% believed slower-than-expected normalization would be the most severe. They were concerned that this scenario could initially lead to higher inflation, which could reduce the credibility of central banks and result in unanchored inflation expectations. This could then be followed by aggressive policy tightening to contain inflation, which could trigger an even more severe recession in the future.

In both scenarios, respondents were primarily concerned about the effects of tightening monetary policy quickly. However, respondents’ views differed on the timing of tightening and the associated economic impacts.

Among respondents, 8% believed that neither scenario would negatively affect their organization. These respondents mostly consisted of exchanges and clearinghouses, trading platforms and other financial market infrastructures that reported no direct exposure to risk assets. Some even believed that higher volatility following these scenarios would benefit their organization through increased trading volumes.

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