The World of Finance Facing the Great Uncertainty

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By Paolo Garonna, Italian Banking, Insurance and Finance Federation

“Numerus Rei Publicae Fundamentum” (“Data is the foundation of a republic” in Latin).
Data, measurement and information are at the heart of the modern concepts of the market economy and good governance. In the financial sector, in particular, sophisticated business models have been developed to accomplish its “social” mission of allocating savings to their best uses. In essence, the task of banking, insurance and financial markets is this: using data measurement and information to channel efficiently financial resources towards the economy and society.
But a formidable threat has arisen in today’s new risk scenarios, of which the ongoing pandemic is a conspicuous illustration. Black swans, once considered inexistent or very rare, are now becoming more and more frequent and disruptive. Think of investors who betted on the entertainment industry or air travel just a few weeks before the lockdowns. Examples are plentiful: stranded assets, unforeseeable litigation risks, uninsurable hazards, decommissioning of nuclear or carbon power stations due to accidents, NPL (nonperforming loans) caused by systemic shocks—not to speak of geopolitical risks or terrorism. A nightmare for responsible risk managers.
So what!? One might say, paraphrasing James Carville: “It’s …

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