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Could we be heading towards another financial crisis?

Even though it happened well over a decade ago, the consequences of the 2007/08 financial crisis are still being felt today.

From a decade of record low interest rates, to stagnant wages and under-investment, its consequences have shaped a whole generation’s political, financial, and social opportunities.

Understandably, few people are keen to repeat the experience. How can we use financial insights to foresee and avoid future crises?

Written by Chris Zacharia |

Presentation
Given their importance in helping organisations steer clear of crises, risk management skills are highly sought after by the world's top financial institutions.

At University of London, our Global MBA offers specialist finance modules, including ‘Risk Management and Decision-making’. As well as equipping you with fundamental analytical tools such as the capital asset pricing model, the module offers a holistic perspective on how organisations assess risk as a whole.

Even large bodies with plenty of data sets struggle to make accurate predictions. Economies are complex and uncertain by nature, which makes predictions unreliable.

But risk isn’t uniform. The module covers credit, market, operational, reputational, and regulatory risk, helping to give students a complete perspective on potential threats. Once risks have been identified, it’s important to use the most up-to-date information available when it’s time to act. That’s why the module also teaches students how to utilise real-time data, along with the financial tools and case studies to support strategic decisions.

"Across finance and economics, forecasting is extremely difficult," says Dr Leone Leonida, the author of the module and a specialist researcher in forecasting systemic banking crises. "Even large bodies with plenty of data sets struggle to make accurate predictions. Economies are complex and uncertain by nature, which makes predictions unreliable."

When it comes to assessing the risks threatening the entire global financial system, the vast scale and complexity make accurate forecasts very difficult. Experts remain divided as to the global banking system’s insulation against another crisis. On the one hand, regulatory changes made since 2008 have made a repeat episode less likely.

But on the other hand, there are numerous signals that the system is less stable than it might seem. According to the Bank for International Settlements, the ratio of global GDP to global debt has risen from 179% in 2007 to 217% in 2017. With so many factors at play, without specialist training it can be difficult to see the underlying patterns.

Nonetheless, it’s possible to gain insight into the nature of crashes by looking at how they’ve unfolded in the past. That’s why the module specifically examines the crisis of 2007 as an in-depth case study.

It’s not about predicting the future. It’s about empowering the next generation of business leaders to identify risks early and respond to them intelligently.

By investigating the causes and consequences of the financial crisis, the module offers a framework through which such crashes can be understood. Even if the next crash might be precipitated by entirely different causes (say, by Chinese public and private debt rather than a sub-prime mortgage market), students are trained to harness timeless insights from 2007/08.

"The module is designed to offer a detailed analysis of both the risks and the tools and processes which can help manage them," says Dr Leonida. "It’s not about predicting the future. It’s about empowering the next generation of business leaders to identify risks early and respond to them intelligently."

Given their vital importance in helping organisations to steer clear of crises, it’s no wonder that risk management skills are so highly sought after by the world’s top financial institutions. And with greater understanding of the risks inherent in the global financial system, we might be able to avoid a repeat of 2007/08.

Find out how our Global MBA can give you the skills to manage and overcome risks.