Why Geopolitical Stress Testing May Be Missing the Real Risks

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Anthony Mayer delivers a provocative challenge to the financial services industry: geopolitical stress testing may be answering the wrong questions. While firms invest heavily in modelling macroeconomic shocks, market volatility, and capital impacts, these exercises often produce large but ultimately unhelpful numbers that offer little insight into how a geopolitical event would actually affect the business. Mayer argues that many stress-testing frameworks have become detached from the specific risks they are intended to measure, relying on broad risk-off assumptions that can obscure the true sources of vulnerability.

Instead, he suggests that the most significant geopolitical threats often emerge from details that sit far below the macroeconomic level. Sanctions, contractual obligations, legal jurisdiction disputes, force majeure provisions, and collateral enforceability can all create consequences that are difficult to capture in standard models but have the potential to generate substantial financial, operational, and reputational damage. For risk leaders, the message is clear: resilience is not simply about having enough capital to survive a crisis. It is about understanding the legal and operational foundations of the business, knowing exactly what risks exist within portfolios and client relationships, and identifying the seemingly small issues that can become major problems when geopolitical tensions escalate.