Factoring geopolitics into risk-based decision-making: avoid surprises, transfer risk, and understand what is going on.

Since the British Rothschilds made a killing on the outcome of the battle of Waterloo, it has rarely happened again that bankers actually influenced geopolitical events, More often, the reverse happens. The financial markets and the financial system as a whole are subject to policy changes and politics, but these prove often hard to forecast.

Indeed, some banks were caught off guard when the conflict between Russia and the Ukraine broke out, even though there was a consistent campaign of warnings that Russia would invade. For major risks, such as climate change or pandemic risk, we also see that policy can influence the trajectory of how such risks develop, but this is so far under-analysed.

This once again underlines that bank analysts may be good at analysing trends on a micro-level, but often fail to identify the macro-trends that can have major impact on banks’ strategy and credit portfolio.

What sort of tools can risk managers use to get a better grasp on such hard-to-forecast risks and improve the quality of decision-making