Alex Brazier: Moonwalking bears and underwater icebergs - hidden risks in markets

Speech by Mr Alex Brazier, Executive Director for Financial Stability Strategy and Risk of the Bank of England, at the London Business School Asset Management Conference 2018, London, 26 April 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Moonwalking bears and underwater icebergs: Hidden risks in markets

The theme of today's session is hidden risks.

Since this is the Investment Management Club, I want to focus on hidden risks in markets.

In my view there are generally two types of such hidden risk. Let's call them bears and bergs (slide 2).

The bears are the risks that hide in plain sight.

These are risks that, after the event, are obvious. Some people are able to see them in real time. Others, because of very human traits, don't.

They are the moonwalking bear in the viral Transport for London Cyclist Awareness video.

For those who haven't seen it, amidst a frenetic basketball game, a person dressed as a bear moonwalks across the screen.

When you know it's there, it's obvious. But when, as instructed , people are engrossed in the highs and lows of the basketball game, many fail to notice the bear.

The risk of adjustment in the stretched prices (and compressed yields) in corporate debt markets are my moonwalking bear, hidden in plain sight.