S&P Global: Credit markets and Systemic risk

16 May 2018

On 10 April, three students from the University of Edinburgh Business School attended the S&P Global Conference in London. The congress had a full house, assisting many practitioners from the main financial institutions of the city, and also counted with some academics and students from the UK.

The speakers were the high note of the event. The main guest speaker was Edward Altman, renown professor of NYU and author of the fifty years old “Altman Z-Score” model to forecast financial stress in manufacturing firms of that time. This development who was very disrupting in its period, has led to many approaches to forecast which companies would go through though times. This model uses as main inputs ratios from the traditional financial reports of a company, and further improvements, called “blending models” have continued, including invoice analysis, macroeconomic factors, governance attributes, among others.

Nowadays the occurrence of geopolitical events, cyber attacks and the emergence of Fintech has required to consider non traditional aspects to understand the behaviour of credit markets and its impact in financial stability. An example of this was Brexit. Since there was not similar scenarios of such nature in recent history, it cannot be easily modelled to understand its impact. Doctor Evgueni Ivantsov, another speaker of the event and Chairman of the European Risk Management Council, proposed the use of dynamic simulation analysis, which has the advantage of considering multiple changes in the elements that can cause stress in a financial institutions and allow them to interact among each other.

Fintech is also another topic discussed in the conference. Nowadays, the traditional institutions are not the only guests in the party. The new and innovative startups of financial services are growing every year as well as their market participation. There is no question that more competition in this market will be beneficial for consumers, but also there has to be regulation in order to protect market inefficiencies and the stability of the financial system. In a world where the largest hotel company does not own any hotels, or the largest taxi company does not own a single car, regulating financial services is a must, independent of the flavour or colour people decide to consume them in.

Sebastian Fierro Marchant, MSc Banking and Risk. Find more information about Santander funding under Opportunities.