Shifting paradigms: Regionalisation and the post-COVID-19 risk matrix

Abstract

The COVID-19 pandemic has exacerbated long-standing tensions in our international system and thrown globalisation into existential doubt. This paper argues that we are unlikely to return to the precrisis status quo and that our emerging global order will instead be hammered into shape by rising state interventionism, systemic rivalry and a growing momentum towards regionalisation. It then argues that regionalism will see a shift from ambitious free-trade and market integration efforts towards the formation of flexible regional arrangements that are more geostrategic and defensive in nature. Going forward, the above geopolitical transitions will disrupt supply chains, generating significant economic instability and systemic risk. This is a particular concern for the financial industry given its higher degree of integration globally. The paper then finally considers how supervisory authorities and financial institutions can prepare for the new normal and mitigate the expected surge in postcrisis regulation. This paper will be of interest to policymakers, risk management professionals and anyone interested in exploring global transitions in the post-COVID-19 landscape.