When Eric Finn Schaanning was featured in Spotlight on Young Researchers in 2017, he had just defended his AFR PhD on fire sales and systemic risk in financial networks at Imperial College London. In 2017, Eric attended the Lindau Nobel Laureate Meeting and in 2018, won an FNR Award for his PhD thesis. 5 years after his PhD, we catch up with Eric, who has been working on cyber risks, financial and regulatory stress tests as well operational risk management – a career spanning Norway, Frankfurt and Zürich – and reflect on the value his PhD has added.
The stress test model you developed during your PhD for which you won an FNR Award, has this been more widely implemented to your knowledge, or developed or evolved in some way?
“Beyond the utilisation in the Bank of England’s official stress test of 2017, parts of the model (i.e. the fire sales contagion mechanism) came to use during the COVID crisis at the European Systemic Risk Board and the European Central Bank.
“We used the model to answer the pressing question whether any systemic repercussions should be feared if bonds that were at risk of being downgraded from an “investment grade” class to the “subinvestment grade” class actually got downgraded. To this end, we conducted an analysis combining different scenarios and assumptions regarding how the economy and financial market participants might behave over the summer of 2020.
“We concluded that while the impact could be large in principle, it would not be sufficiently large to cause systemic risk on its own. The analysis was published as a technical note and also later on as a shorter article on VoxEU.
What was your next step after completing your PhD?
“After my defence, I stayed for another year at the Norwegian Central Bank, Norges Bank, who had supported me throughout the PhD with both data and expert judgement to develop and calibrate my models. During this year, I was working on various topics around financial stability such as overseeing the safety and soundness of “central counterparties (CCPs)” – the type of financial market infrastructure through which derivative contracts now need to be cleared after the post-crisis regulatory reforms of 2009.”
What have you been working on in the last 5 years?
“Between 2018 and 2021, I went on a three-year secondment from the Norwegian Central Bank to the European Systemic Risk Board, which is based at the European Central Bank in Frankfurt.
“There, I was coordinating a task force on cyber risks, which culminated in the first “Systemic Cyber Risk” report and tackled the question whether “under the right circumstances” a cyber-attack could evolve into a “classic” financial crisis (i.e. grow past a mere operational problem into a financial stability concern) and we concluded this analysis with a “yes”.
“Moreover, I was also coordinating a task force which designs the adverse scenarios for the largest European regulatory stress tests, such as the EBA EU-wide bank stress test or the European stress tests for insurers and pension funds conducted by EIOPA.
“After the end of my secondment, I decided to move even closer to operational risk management and took up a role at Credit Suisse in Zurich, where I am responsible for the interest rate risk and asset liability management risks of entities in the EMEA region.”
You earned a PhD and then left the world of research for a new adventure. What did you learn during your PhD that you have been able to apply in your professional life?
“While the time spent crunching numbers, solving equations and producing computer code has decreased since my PhD days, I have continuously moved closer to “hands-on” risk management. In my career I’ve benefited from skills such as precision, perseverance and remaining optimistic during long periods of difficult work that I’ve earned during the PhD.
However, I think it’s a “two-way” street of learning: having moved into more operational roles and having thought about the same topic from an academic, a policy making, and now also a private sector perspective has helped me to develop an even deeper understanding of how the financial system works and how its bits and pieces connect. This in turn generates some interesting inspirations for future research.
“Recently, a new article on “reverse stress testing” co-authored with a friend has been accepted for publication in Mathematical Finance, which is the result of such “interdisciplinary” inspiration taken from applied mathematics, financial stability and policy making.”
Updated November 2022
About Spotlight on Young Researchers
Spotlight on Young Researchers is an FNR initiative to highlight early career researchers across the world who have a connection to Luxembourg.