Name: Banking instability: How can you prepare for future geopolitical risks?
Uploaded: 2023-06-13T12:14:54.841Z
Duration: 507.51
Description: Manas Chawla, Founder & CEO, London Politica, joins us to share the geopolitical risks on his radar and their impact on financial services and fintech. Stay up to date with the community on https://finovate.com/ Find out more about FinovateSpring on http://www.finovatespring.com/

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English

{{00:00:05}}
Julie Muhn: Hello and welcome.

{{00:00:06}}
My name is Julie Muhn.

{{00:00:08}}
I'm senior research analyst with Finovate.

{{00:00:11}}
We are here live at FinovateSpring
2023 in San Francisco.

{{00:00:16}}
Thank you so much for joining us today.

{{00:00:18}}
I am joined by Manas Chawla,  founder
and C E O of London Politica.

{{00:00:23}}
Manas.

{{00:00:23}}
Thank you so much for joining us today.

{{00:00:25}}
Thanks so much for having me.

{{00:00:26}}
Yeah, so you just stepped off
the stage from your keynote where

{{00:00:30}}
you talked about gray rhinos.

{{00:00:31}}
I wanna dig into that.

{{00:00:33}}
What are these?

{{00:00:34}}
You talked about poly
crisis and gray rhinos.

{{00:00:37}}
How are these relevant right now and how
are they different from typical black swan

{{00:00:41}}
events that we may be more familiar with?

{{00:00:44}}
Manas Chawla: Sure, So I think black swan
events is what everyone loves to talk

{{00:00:47}}
about, particularly in the context of
the crises we've had in the last decade.

{{00:00:51}}
And so these are events that people
feel are almost entirely unpredictable.

{{00:00:55}}
Have massive impact, and often
after the fact, they can rationalize

{{00:00:58}}
with the benefit of hindsight.

{{00:01:00}}
In comparison gray rhino events
are entirely predictable.

{{00:01:04}}
In fact, you see them coming at you much
like gray rhinos, but they're they, stalk

{{00:01:08}}
you incredibly softly, and so they'll
creep up on you before you know it.

{{00:01:12}}
Which is why it's often really,
hard to do something about them.

{{00:01:16}}
And then polycrisis is something
I threw in because it's a really,

{{00:01:20}}
interesting revival going on right now.

{{00:01:21}}
There's a really fascinating philosopher
a French complexity theory called

{{00:01:25}}
Edgar Morin from the seventies.

{{00:01:26}}
He came up with a term poly crisis.

{{00:01:29}}
And basically what that means is
that crises in the modern age don't

{{00:01:33}}
have one clearly defined logic.

{{00:01:35}}
They're in fact a convergence of
multiple systemic vulnerabilities,

{{00:01:38}}
each one compounding on the other.

{{00:01:40}}
Yeah.

{{00:01:40}}
And if you look at what we've had
with the pandemic, the war in Ukraine,

{{00:01:43}}
inflation supply chain shocks, they
all really feed into each other.

{{00:01:45}}
They're not separate crises.

{{00:01:47}}
And that's certainly what
we'll have in the next decade.

{{00:01:49}}
It's just about figuring out where
the next poly crisis and where the

{{00:01:52}}
next great rhinos are coming from.

{{00:01:54}}
Julie Muhn: Interesting.

{{00:01:54}}
Okay.

{{00:01:55}}
So, with that, talk to us about what.

{{00:01:57}}
These Gray Rhino events are Yeah.

{{00:02:01}}
Manas Chawla: Specifically, I mean there's
three specific ones that I think are gonna

{{00:02:04}}
be most important, but are also in the
current sort of market, most overlooked.

{{00:02:08}}
The first is something which
is really hot this week, the

{{00:02:11}}
American national debt problem.

{{00:02:13}}
It's something that gets brought
up every couple of months.

{{00:02:15}}
If you're under the age of 30,
you've probably heard about

{{00:02:17}}
it your whole entire life.

{{00:02:18}}
Yeah.

{{00:02:19}}
The American debt ceiling's been raised
over a hundred times since the second

{{00:02:22}}
World War, and I'm almost 99% sure it'll
get raised this time around as well.

{{00:02:28}}
The problem is that the only way America
has to manage its debt problem is for

{{00:02:32}}
two increasingly polarized political
parties to threaten to blow up the

{{00:02:36}}
world economy every couple of months.

{{00:02:39}}
Yeah.

{{00:02:39}}
Because if the American debt
ceiling doesn't rise, America's

{{00:02:41}}
gonna default on its debt and
that'll have massive consequences.

{{00:02:45}}
Yeah.

{{00:02:45}}
The best predictions I've seen
are, the S & P 500 is gonna tank

{{00:02:48}}
by 30 to 40% almost immediately.

{{00:02:51}}
For the average person that wipes out
something like $20,000 off of your 401k.

{{00:02:55}}
Yeah.

{{00:02:56}}
Instantly it's gonna have ripple effects
across foreign markets, especially

{{00:02:59}}
in emerging markets that are already
very ill suited to manage paying

{{00:03:03}}
off interest on the sovereign debt.

{{00:03:05}}
So countries like Sri Lanka, like
Argentina, like Lebanon the ramifications

{{00:03:11}}
of that could be really huge.

{{00:03:12}}
The second Gray Rhino I spoke
about was US China competition,

{{00:03:15}}
obviously on everyone's minds.

{{00:03:17}}
Yeah.

{{00:03:17}}
I think that the risk of   Chinese
invasion of Taiwan is frankly really

{{00:03:23}}
underpriced in the markets right now.

{{00:03:25}}
Most of the analysts I see put
it somewhere around 10 to 30%.

{{00:03:28}}
I think it's much higher than 50.

{{00:03:29}}
Oh, wow.

{{00:03:30}}
If we're looking at a timeframe
before 2030, And the biggest problem

{{00:03:33}}
with that, in addition of course,
starting World War III is the fact that

{{00:03:36}}
Taiwan has almost an a monopolistic
control on how microchips are made.

{{00:03:41}}
Microchips are everywhere.

{{00:03:42}}
Yes, they're in our phones.

{{00:03:43}}
They're in that camera.

{{00:03:45}}
And Taiwan controls 90% of
the most advanced microchips.

{{00:03:49}}
And so that means if that were to happen,
our entire digital infrastructure supply

{{00:03:53}}
chain would collapse almost instantly.

{{00:03:54}}
Yeah.

{{00:03:55}}
And just really quickly, the last
risk I spoke about was this practice

{{00:03:58}}
that many central banks are doing,
they're issuing digital currencies.

{{00:04:01}}
Yeah.

{{00:04:02}}
And the furthest ahead in this C B D C,
they're called C B D C arms race is China.

{{00:04:07}}
The People's Bank of China has
already issued the digital yuan.

{{00:04:10}}
They say they're in the pilot phase.

{{00:04:12}}
But actually over 300 million
Chinese people have digital wallets.

{{00:04:16}}
Yeah.

{{00:04:17}}
The big problem with that is how it
empowers digital authoritarianism.

{{00:04:21}}
Cash has been king for hundreds of years
but now the Chinese Communist Party will

{{00:04:25}}
know how every single Chinese citizen
or visitor in China has been spent.

{{00:04:29}}
Every single digital Yuan.

{{00:04:30}}
Yeah.

{{00:04:31}}
And that has massive ramifications
for how they handle the social

{{00:04:35}}
context of their economy and how that
feeds into the social credit system.

{{00:04:38}}
And of course whether or not they
choose to import it abroad, which

{{00:04:41}}
they probably most certainly will.

{{00:04:42}}
Yeah.

{{00:04:43}}
Specifically in their investments
in Africa and Central Asia.

{{00:04:45}}
Julie Muhn: Yeah.

{{00:04:46}}
So lots of digital
privacy, red flags Yeah.

{{00:04:48}}
In that situation.

{{00:04:48}}
Great.

{{00:04:50}}
So given all that what can banks
do to manage all of those risks?

{{00:04:54}}
It's got, it's a lot to take on.

{{00:04:55}}
Yeah.

{{00:04:55}}
So what are some things banks can do?

{{00:04:57}}
Manas Chawla: The first thing to do is to
know that political risk is a priority.

{{00:05:01}}
And that might seem like it's
taken for granted nowadays.

{{00:05:04}}
Yeah, but it's really not.

{{00:05:04}}
Because if you look at the
post 2007 decade, people have

{{00:05:08}}
really started to wake up to it.

{{00:05:09}}
But in the way that they
have, it's largely limited to

{{00:05:12}}
a boardroom activity, right?

{{00:05:14}}
The idea is you bring in a former
ambassador, a former secretary of

{{00:05:17}}
State into your boardroom, they
talk for an hour, and suddenly

{{00:05:19}}
you've checked off the political
risk tick mark on your list, right?

{{00:05:22}}
Yeah.

{{00:05:23}}
What they really need is to operationally
include it in all their different.

{{00:05:27}}
Operational silos for it to be
a, crucial part of the enterprise

{{00:05:31}}
risk management frameworks.

{{00:05:33}}
And to really look at this as an issue
that impacts every part of the company.

{{00:05:36}}
Everything from supply chain procurement
to the financial aspects to where you

{{00:05:41}}
sell products, to government regulation.

{{00:05:43}}
Julie Muhn: Yeah.

{{00:05:44}}
All right.

{{00:05:44}}
Okay, so moving on to the next question.

{{00:05:46}}
Looking at the, right now, right here,
right now, what are some of the key

{{00:05:49}}
crises that you're seeing, and how
are these going to evolve later this

{{00:05:53}}
year and into the next year or so?

{{00:05:55}}
Yeah.

{{00:05:56}}
Manas Chawla: The economy again isn't
really precarious situation right now.

{{00:06:00}}
The era of low and in the case
of Japan sub zero interest

{{00:06:04}}
rates is most certainly over.

{{00:06:06}}
And what we're going to see happening,
especially as we see this sort of

{{00:06:11}}
brutal inflation across the west world.

{{00:06:13}}
I've just flown over from London,
the UK is doing particularly poorly.

{{00:06:16}}
But we're the only economy apart from
Russia that actually contracted in

{{00:06:19}}
the last quarter in the modern West.

{{00:06:24}}
Banks really should watch out
for particularly the inflation

{{00:06:29}}
problem, particularly how
interest rates are gonna rise.

{{00:06:31}}
But in the context of the Russia, Ukraine
war this is a war that's gonna continue

{{00:06:36}}
to evolve over the next six months.

{{00:06:38}}
It's not ending anytime soon.

{{00:06:39}}
Yeah.

{{00:06:39}}
Because fundamentally,
it's a war of attrition.

{{00:06:42}}
And I think there's a couple of certain
things that people are overlooking.

{{00:06:45}}
One of them is the situation
with crops and grains, right?

{{00:06:49}}
So Ukraine produces.

{{00:06:51}}
A lot of the food supply
for, large parts of Africa.

{{00:06:54}}
And Russia effectively has the means
necessary to blockade that supply, which

{{00:06:59}}
means that it controls the power to cause
effectively some of the worst famines

{{00:07:03}}
we'd ever see in those parts of Africa.

{{00:07:05}}
Now.

{{00:07:05}}
Until now, they've negotiated
a deal with the Ukrainians.

{{00:07:08}}
To let that blockade not happen.

{{00:07:10}}
And  Turkey's been a big part of that.

{{00:07:12}}
But that certainly isn't
going to go on forever.

{{00:07:16}}
Yeah.

{{00:07:16}}
And the Russians want something out of
that deal, and I think it's something

{{00:07:19}}
that we just take for granted.

{{00:07:21}}
Julie Muhn: Yeah.

{{00:07:21}}
Oh that's, interesting.

{{00:07:23}}
So given all of this,
it's a lot to take in.

{{00:07:26}}
Let's end in a positive note.

{{00:07:27}}
Yeah.

{{00:07:27}}
And talk to us about some of the
key opportunities right now that

{{00:07:30}}
exist for banks and FinTech.

{{00:07:31}}
Manas Chawla: Yeah.

{{00:07:32}}
It depends what sort of a
company you are right now.

{{00:07:35}}
But we're in a really interesting
curative, our economy, which

{{00:07:38}}
the economist Schumpeter would
refer to as creative destruction.

{{00:07:43}}
14% of American companies
are zombie businesses.

{{00:07:45}}
Effectively, all they earn is just
enough profit to pay off the interest

{{00:07:49}}
on their debts, but not the debt itself.

{{00:07:51}}
That means if you're a company that's
not a zombie business this is something

{{00:07:54}}
that's gonna wipe out your competition.

{{00:07:56}}
Yeah.

{{00:07:56}}
Which means companies that are producing
genuine value for the economy, that are

{{00:07:59}}
not over leveraged, that haven't built a
business solely off of the low interest

{{00:08:03}}
rates you've seen over the last decade.

{{00:08:04}}
Yeah.

{{00:08:05}}
These companies are gonna do really, well.

{{00:08:06}}
Yeah.

{{00:08:07}}
In their segments and they
should take full advantage of it.

{{00:08:09}}
Great.

{{00:08:09}}
Julie Muhn: Yeah, so there's
opportunity out there in there.

{{00:08:11}}
They're there.

{{00:08:12}}
We just need to find 'em.

{{00:08:12}}
Exactly.

{{00:08:13}}
Great.

{{00:08:14}}
All right.

{{00:08:14}}
This has been Manas Chawla,
founder and CEO of London Politica.

{{00:08:18}}
My name

{{00:08:19}}
is Julie Muhn.

{{00:08:20}}
Thank you

{{00:08:20}}
Julie Muhn: so much for joining us.

{{00:08:21}}
Thank you.

I'm senior research analyst with Finovate.

We are here live at FinovateSpring
2023 in San Francisco.

I am joined by Manas Chawla,  founder
and C E O of London Politica.

Yeah, so you just stepped off
the stage from your keynote where

You talked about poly
crisis and gray rhinos.

How are these relevant right now and how
are they different from typical black swan

events that we may be more familiar with?

Manas Chawla: Sure, So I think black swan
events is what everyone loves to talk

about, particularly in the context of
the crises we've had in the last decade.

And so these are events that people
feel are almost entirely unpredictable.

Have massive impact, and often
after the fact, they can rationalize

In comparison gray rhino events
are entirely predictable.

In fact, you see them coming at you much
like gray rhinos, but they're they, stalk

you incredibly softly, and so they'll
creep up on you before you know it.

Which is why it's often really,
hard to do something about them.

And then polycrisis is something
I threw in because it's a really,

There's a really fascinating philosopher
a French complexity theory called

And basically what that means is
that crises in the modern age don't

They're in fact a convergence of
multiple systemic vulnerabilities,

And if you look at what we've had
with the pandemic, the war in Ukraine,

inflation supply chain shocks, they
all really feed into each other.

And that's certainly what
we'll have in the next decade.

It's just about figuring out where
the next poly crisis and where the

Manas Chawla: Specifically, I mean there's
three specific ones that I think are gonna

be most important, but are also in the
current sort of market, most overlooked.

The first is something which
is really hot this week, the

It's something that gets brought
up every couple of months.

If you're under the age of 30,
you've probably heard about

The American debt ceiling's been raised
over a hundred times since the second

World War, and I'm almost 99% sure it'll
get raised this time around as well.

The problem is that the only way America
has to manage its debt problem is for

two increasingly polarized political
parties to threaten to blow up the

Because if the American debt
ceiling doesn't rise, America's

gonna default on its debt and
that'll have massive consequences.

The best predictions I've seen
are, the S & P 500 is gonna tank

For the average person that wipes out
something like $20,000 off of your 401k.

Instantly it's gonna have ripple effects
across foreign markets, especially

in emerging markets that are already
very ill suited to manage paying

So countries like Sri Lanka, like
Argentina, like Lebanon the ramifications

The second Gray Rhino I spoke
about was US China competition,

I think that the risk of   Chinese
invasion of Taiwan is frankly really

Most of the analysts I see put
it somewhere around 10 to 30%.

If we're looking at a timeframe
before 2030, And the biggest problem

with that, in addition of course,
starting World War III is the fact that

Taiwan has almost an a monopolistic
control on how microchips are made.

And Taiwan controls 90% of
the most advanced microchips.

And so that means if that were to happen,
our entire digital infrastructure supply

And just really quickly, the last
risk I spoke about was this practice

that many central banks are doing,
they're issuing digital currencies.

And the furthest ahead in this C B D C,
they're called C B D C arms race is China.

The People's Bank of China has
already issued the digital yuan.

But actually over 300 million
Chinese people have digital wallets.

The big problem with that is how it
empowers digital authoritarianism.

Cash has been king for hundreds of years
but now the Chinese Communist Party will

know how every single Chinese citizen
or visitor in China has been spent.

FinovateSpring

Trend

Explainer

Manas Chawla, Founder & CEO, London Politica, joins us to share the geopolitical risks on his radar and their impact on financial services and fintech. 

Stay up to date with the community on https://finovate.com/ 

Find out more about FinovateSpring on http://www.finovatespring.com/ 