Systemic Risk

A Practitioner's Guide to Measurement, Management and Analysis

verfasst von: Malcolm H.D. Kemp

Verlag: Palgrave Macmillan UK

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

Systemic Risk provides readers with a wide-ranging practical guide to systemic risk in the financial system. It challenges the notion that systemic risk is exclusively about interconnectivities within the financial system, showing that past systemic risk crises have often involved a broader range of vulnerabilities.

It describes how regulators and governments are seeking to manage systemic risk, and how their concerns are driving change in regulatory and business environments across the financial sector. It sets out how firms and practitioners can effectively respond to these changes (covering topics such as data needs, quantification of risk exposures, management disciplines and skillset requirements etc.). It highlights the sources and characteristics of systemic risk and the concentrations of exposures to this risk. It also links systemic risk with other risk disciplines including exploring how systemic risk ties in with liquidity risk and credit risk and how it interacts with central clearing, collateralisation and pricing of derivatives.

Inhaltsverzeichnis

Frontmatter

1. Introduction

Abstract

This chapter describes the structure and primary focus of the book. The invention of money, several thousand years ago, ranks as one of humanity’s more important inventions. The extent to which a society adopts modern financial practices (such as those underpinning modern capital markets, banking and insurance) strongly links to its overall competitiveness. Money makes practical the effective division and specialisation of labour and of other factors of economic production. It allows us to borrow or save depending on whether our current productive activities are less than or greater than our immediate consumption needs. Systemic risk (in a financial context) is about the ways in which this backdrop can get disrupted (and what we can do to mitigate this risk). Who amongst us, in their heart of hearts, would be happy to return to stone-age barter?

Malcolm H.D. Kemp

2. Systemic Risk and the Financial System

Abstract

This chapter introduces a common working definition of systemic risk, along the lines of ‘a risk of disruption in the financial system with the potential to have serious negative consequences for the real economy’. It then explores how systemic risk is typically understood by a range of interested parties and how this understanding does not always align with the working definition given above. It also explains why regulators and policymakers typically believe that all types of financial intermediaries, markets and infrastructure may be potentially systemically important to some degree. Two ‘models’ for systemic risk are explored, – the ‘domino’ model and the ‘tsunami’ model, – as are some historical examples of systemic risk events and some overall perspectives on why the financial system might be susceptible to systemic risk.

Malcolm H.D. Kemp

3. Overall Features of the Financial System

Abstract

This chapter discusses generic features of systemic risk shared across nearly all parts of the financial system. It explores further the ‘domino’ and ‘tsunami’ models of systemic risk introduced in the previous chapter, and how both are often present if a systemic crisis is large. It also explores how financial regulation, accounting, regulatory capital requirements, liquidity and behavioural finance interact with systemic risk.

Malcolm H.D. Kemp

4. Individual Elements of the Financial System

Abstract

This chapter explores in more detail the systemic risk characteristics of individual parts of the financial system. Separate sections cover banks, insurers, pension funds, investment funds, asset managers, shadow banks and providers of market infrastructure such as exchanges and clearing houses. The chapter also explores how these organisations interact with other players in the wider financial system, including regulators and supervisors, governments, sovereign wealth funds (and other ‘long-term’ Investors), the real economy and the public more generally.

Malcolm H.D. Kemp

5. Measuring Systemic Risk

Abstract

Once a risk has been identified, a natural next step is to try to measure it. Warning bells typically trigger in the minds of risk managers if they come across a material measurable risk that is not actually being measured. Usually this is a sign that the risk is not being given as much attention as it warrants. The relative lack of attention given to systemic risk prior to the 2007–2009 Credit Crisis is a case in point. This chapter explores the considerable amount of research and other effort now being placed on measuring systemic risk and on seeking to uncover previously underappreciated vulnerabilities within the financial system.

Malcolm H.D. Kemp

6. Designing and Implementing Macroprudential Policy

Abstract

This chapter explores the tools that policymakers and regulatory bodies can deploy to mitigate systemic risk vulnerabilities, if policy action seems to be warranted. It highlights the appeal of central authorities telegraphing early their planned actions (or even just the suite of possible actions they might follow in a variety of yet to happen circumstances). ‘Forward guidance’ is a core way in which central banks guide market expectations regarding monetary policy. Its adoption in the systemic risk field can help foster financial stability, by offering more predictable outcomes, thus allowing market participants to plan more effectively.

Malcolm H.D. Kemp

7. Network Effects and Societal Shifts

Abstract

This chapter explores broader trends in systems and interconnectivity across society. Included within the scope of the chapter are network effects arising from modern IT tools such as the internet and social media. However, the largest ‘network’ of all from a human perspective is the whole of human civilisation. The chapter therefore also focuses on societal trends that relate to systemic risk and to the financial system, paying most attention to evolving notions of ‘fairness’ (since these underpin the social contracts that form the bedrock on which any financial system is built).

Malcolm H.D. Kemp

8. Responding to Systemic Risk

Abstract

This concluding chapter summarises the main trends that seem to be driving systemic risk developments and explores how individuals and organisations in the financial sector might best respond to these trends. Topics explored include (a) managing interaction with regulators and supervisors, (b) managing data, (c) responding to trends in risk measurement and risk management disciplines, (d) the internal structure of risk management teams and (e) responding to changes in market structure.

Malcolm H.D. Kemp

Backmatter

Titel: Systemic Risk
verfasst von: Malcolm H.D. Kemp
Verlag: Palgrave Macmillan UK
Electronic ISBN: 978-1-137-56587-7
Print ISBN: 978-1-137-56586-0
DOI: https://doi.org/10.1057/978-1-137-56587-7