Source: Bank for International Settlements
Introduction
Two timeless pieces of wisdom were inscribed on the ancient walls of Apollo’s temple at Delphi: “Know yourself” and “Nothing in excess.”
These words were meant as philosophical guidance, but they evoke what a banking supervisor might advise today: “know your risks and don’t engage in excessive risk-taking!”
Risk-taking is intrinsic to banking – it’s what allows capital to be allocated and innovation to flourish. Yet, history has repeatedly shown us the dire consequences of losing sight of those Delphic maxims. Risk is a constant in finance, but the nature of that risk – and the task of managing it – has grown ever more complex in the 2,500 years since those words were carved in stone.
Technological progress has accelerated not only the pace at which we operate, but also the speed at which risks spread through the financial system. Artificial intelligence has the potential to rapidly and profoundly transform not just finance, but the broader economy and society as a whole too. Cyber risk is now easily a top priority for modern risk managers. Crypto-assets, stablecoins and central bank digital currencies may all transform the payments and banking landscape, reshaping how value is exchanged, how financial services are delivered, and even how monetary policy is transmitted.
Climate and nature-related risks are on the rise and a declining global commitment to mitigate and adapt to these climate risks could lead to more physical and transition risks in the future.
Globalisation has made the world more interconnected, contributing to economic prosperity, but it has also made it easier for risks to spread throughout the system. Because globalisation thrives on predictability and trust, it inherently relies on internationally agreed rules to provide stability, fairness and a level playing field. Yet, in recent years, rising geopolitical fragmentation has been putting pressure on these very rules and the institutions that uphold them.