The financial system does not seem short on risks at the moment, and the media won’t stop warning people about them. However, beyond ultra-high valuations in seemingly every asset class (bar oil and some commodities), a new risk has emerged: concentration. Following on the back of his warning about clearinghouses, White House economic adviser Gary Cohn, has just warned that post-Crisis regulations have created a risk from the increased concentration of the industry. Cohn said more and more activity was flowing through a smaller amount of firms, posing risks to the financial system.
FINSUM: The idea of asset managers not being “systemically important” is, in our view, preposterous. Can you even imagine the repercussions if BlackRock or Vanguard went under? There are certainly heightening risks stemming from increased concentration.