Photo Massimiliano Marini Massimiliano Marini © REYL

 By Massimiliano Marini, Chief Risk Officer at Reyl Intesa Sanpaolo

Today’s world is more economically interconnected than ever, while also experiencing significant geopolitical fragmentation. In this context, geopolitical risks rank among the three main challenges banks will have to face in the years ahead.

Historically, geopolitical risk has often been defined rather vaguely as the additional challenges and opportunities associated with investing in foreign markets, particularly from the perspective of US investors. This definition is too narrow, however, as it fails to account for the fact that even purely domestic portfolios can be heavily affected by political and economic upheavals worldwide.

A more precise definition was put forward by Dario Caldara and Matteo Iacoviello, who describe geopolitical risk as the threat, realisation and escalation of adverse events — such as wars, terrorism and political tensions — that disrupt international relations. This broader definition is more compelling, as it encompasses not only the events themselves but also the anticipation of these risks, which influence investment decisions, market behaviour and global macro-financial cycles.

From headlines to portfolios

Geopolitical instability has once again become a major driver of market volatility, shaping investment strategies and corporate decisions worldwide. In a period marked by fragmented international governance, shifting alliances and rising protectionism, understanding these dynamics has become essential for risk managers and investors alike.

The current geopolitical environment is growing increasingly unpredictable. Threats and actions with geopolitical dimensions continue to steer investment decisions around the world, making them a decisive factor in wealth management.

Switzerland’s financial centre faces significant challenges amid rising global uncertainty. Against the backdrop of ongoing conflicts in Ukraine and the Middle East, intensifying tensions between the United States and China, cyber threats and renewed tariff disputes, Switzerland’s long-standing political and economic stability is coming under severe strain. For the Swiss financial sector, this environment creates both new risks and opportunities to reinforce its reputation as a safe haven for investors and companies.

Geopolitical risks and wealth management are closely intertwined. Successful wealth managers stay one step ahead by continuously monitoring political and economic trends, adapting to regulatory changes and relying on data-driven strategies to protect client assets.

The main drivers of geopolitical risk

Persistent conflicts in Eastern Europe and the Middle East continue to disrupt energy supply chains and commodity markets. The risk of escalation — whether through direct state action or proxy conflicts — remains a major potential tail event for global markets.

The decoupling of major economies, particularly the United States and China, is reshaping global trade flows. Export controls on technology and critical minerals are creating supply chain vulnerabilities, while regional trade blocs are gaining in importance.

Elections in major economies, the rise of populist movements and mounting fiscal pressures are amplifying uncertainty. The unpredictability of public policy — from sanctions to capital controls — can trigger sudden market dislocations.

Geopolitical shocks can be transmitted to banks and their operating environment through several channels, affecting them across three main dimensions: financial markets, the real economy, and safety and security. The resulting risks span credit, liquidity and funding, market, business model, operational and governance exposures. Banks are therefore required to integrate geopolitical risks into their broader risk identification and management frameworks.

The ability to manage these risks proactively will, in my view, prove a key differentiator between top-tier wealth and asset managers and the rest, as clients increasingly demand data-driven expertise to protect their portfolios. Wealth and asset managers that succeed in integrating geopolitical analysis into their investment frameworks will be better placed to protect and grow client assets — while reinforcing their standing in an unpredictable world.

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