Systemic Risk Survey Results - 2012 H1

The Systemic Risk Survey is conducted on a biannual basis, to quantify and track market participants’ views of risks to, and their confidence in, the stability of the UK financial system.
Published on 15 June 2012

This report presents the results of the 2012 H1 survey which was conducted between 16 April and 15 May.

Probability of a high-impact event and confidence in the UK financial system

  • In 2012 H1, the perceived probability of a high-impact event in the UK financial system in the short term fell from its 2011 H2 peak. Thirty-six per cent of respondents considered it very high or high and 24% low or very low.
  • The perceived probability of a high-impact event in the medium term also fell, but by less, and remained elevated at its second highest level since the survey began in July 2008. Forty-eight per cent of respondents considered it very high or high and 8% low or very low.
  • Interestingly, these results were not borne out by responses to a separate question on respondents’ perceived change in the probability of a high-impact event over the past six months. In this case, a small net balance of respondents (2%) thought the probability of a high-impact event in the short term had increased rather than decreased over the past six months. A larger positive net balance (18%) thought so for the medium term. This perhaps reflects the high volatility in sentiment over the past six months or so, consistent with heightened uncertainty about the timing and impact of possible shocks to the UK financial system.
  • Confidence in the stability of the UK financial system as a whole over the next three years remained low, around levels last seen in 2010 H1, though there was a small improvement on 2011 H2.

Sources of risk to the UK financial system

  • The top seven risks considered to have the greatest impact on the UK financial system if they were to materialise were: sovereign risk (cited by 79% of respondents), the risk of an economic downturn (79%), funding risk (45%), risks around regulation/taxes (40%), the risk of financial institution failure/distress (25%), the risk of financial market disruption/dislocation (21%) and the risk of property price falls (21%).
  • This list was unchanged from the 2011 H2 survey. Sovereign risk and the risk of an economic downturn remained the two most commonly mentioned risks, cited by almost 80% of respondents — more than for any risk since the survey began in July 2008. In both of the two most recent surveys, when asked to rank their risks, over 60% of respondents identified sovereign risk as number one. The number of respondents citing funding risk remained elevated, although fell somewhat from its level in 2011 H2.
  • Compared with 2011 H2, there was an increase in respondents citing geopolitical risk (+7 percentage points), the risk of loss of confidence in authorities (+5 percentage points) and the risk of tightening in credit conditions (+4 percentage points) as key risks.

 

Risks most challenging to manage as a firm

  • The top seven risks respondents would find most challenging to manage as a firm were the same as the key risks listed above. But the ordering was significantly different: the three considered most challenging to manage were the risk of an economic downturn (56% of respondents), risks around regulation/taxes (37%) and funding risk (34%). Sovereign risk fell from first to fourth risk most challenging to manage in the latest survey, after a sharp decline in respondents citing it (-44 percentage points on 2011 H2).

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