Upward Pressure in American Economy Leads to New Concerns, says GARP Risk Index

Quarterly survey of risk management professionals finds debt leveraging, banking health, macroeconomic factors among top influences on economic risk

Commodity prices the quickest mover, potentially seen as the "next bubble"

U.S. systemic risk aggregate increases four points

Jan 06, 2011, 07:57 ET from The Global Association of Risk Professionals (GARP)

NEW YORK and LONDON, Jan. 6, 2011 /PRNewswire/ -- Debt leverage is still the key risk factor affecting the American economy, despite concerns over a "new bubble" in commodities and macroeconomic factors, according to the third quarterly Risk Index from The Global Association of Risk Professionals (GARP, www.garp.org), released today.  The Risk Index, a quarterly gauge of global perception of the risk factors affecting the U.S. economy, found overall perception of the riskiness of the economy slightly elevated, as the Central Risk Index rose to 111 from 109 last quarter.

Perceptions of market volatility reversed their pattern from Q2, dropping 4.3 percent.  Other factors comprising the index include banking health, credit spreads, commodity prices, equity values and operational risk.  The Index measure of systemic risk in the U.S. economy, or how the economy suffers major crises, has risen four points, from an aggregate score of 111 last quarter to 115 this quarter.

The fastest growing risk to the American economy, according to the Index, was commodity prices, which increased 7.3 percent in its weight on the Risk Index.  GARP analysts attribute this to concerns over a steep rise in prices across many commodity prices, perhaps presaging the next economic bubble.

"The Index this quarter reflects some uncertainty in the economy, having been fielded just before a midterm election in the United States," said Chris Donohue, managing director, GARP Research Center.  "Not surprisingly, risk managers around the world remain wary of the markets and the macroeconomic factors in the economy.  However, the emergence of commodities as a potential danger area reflects a heightened sensitivity toward sudden movements in prices in certain sectors of the American economy."

The Risk Index also found divided opinions regarding two major pieces of financial legislation, the Dodd-Frank Act and Basel III.  Overall, risk managers felt that Basel will be the most helpful, with 60 percent claiming it will have a "high impact" compared to Dodd-Frank's 46 percent.  However, risk managers in Asian countries found both to be similarly beneficial, while risk managers in Europe and North America were quite skeptical of Dodd-Frank—only 37 percent of risk managers in both regions felt that it would have a positive impact.

To complete the current Risk Index report, GARP researchers contacted 913 risk managers between October 20 and November 5.

About The Global Association of Risk Professionals

The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to preparing professionals and organizations to make better informed risk decisions. Membership represents nearly 150,000 risk management practitioners and researchers from banks, investment management firms, government agencies, academic institutions, and corporations from more than 195 countries. GARP administers the Financial Risk Manager (FRM®) and the Energy Risk Professional (ERP®) exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensive professional education and training for professionals of all levels. www.garp.org.

SOURCE The Global Association of Risk Professionals (GARP)