Systemic Risk in Financial Services

2011 ◽  
Vol 16 (2) ◽  
pp. 195-300 ◽  
Author(s):  
D. Besar ◽  
P. Booth ◽  
K. K. Chan ◽  
A. K. L. Milne ◽  
J. Pickles
Keyword(s):  
Financial Markets ◽  
Systemic Risk ◽  
Financial Services ◽  
Financial Crises ◽  
Financial System ◽  
Policy Makers ◽  
Large Aggregate ◽  
The Past ◽  
Markets And Institutions ◽  
Aggregate System

AbstractThe current banking crisis has reminded us of how risks materialising in one part of the financial system can have a widespread impact, affecting other financial markets and institutions and the broader economy. This paper, prepared on behalf of the Actuarial Profession, examines how such events have an impact on the entire financial system and explores whether such disturbances may arise within the insurance and pensions sectors as well as within banking. The paper seeks to provide an overview of a number of banking and other financial crises which have occurred in the past, illustrated by four case studies. It discusses what constitutes asystemicevent and what distinguishes it from a large aggregate system wide shock. Finally, it discusses how policy-makers can respond to the risk of such systemic financial failures.

Financialization

2018 ◽  
pp. 276-290
Author(s):  
Ravi Roy ◽  
Thomas D. Willett
Keyword(s):  
Financial Markets ◽  
Financial Services ◽  
Capital Mobility ◽  
Global Financial Crisis ◽  
Economic Globalization ◽  
The Past ◽  
The World ◽  
The Global Financial Crisis ◽  
National Economies ◽  
Global Financial System

The size and scope of financial sectors throughout the world have grown exponentially in tandem with the rise of globalization and increased capital mobility. The terms “economic globalization” and “financialization” are often discussed as inextricably related phenomena. Although the rapid increase in the number and variety of financial services and products during the past four decades has helped spur economic growth and create wealth on an unprecedented scale, the devastating fallout from the global financial crisis of 2008–2009, and the economic turbulence that followed, demonstrates how poorly managed financial sectors can simultaneously cause enormous pain. This chapter argues that if the opportunities created by economic globalization and financialization are to be maximized, while at the same tempering volatile financial markets, then the global financial system (and the national economies connected with it) must be fundamentally restructured. A number of ways that should be taken under consideration are discussed.

Financial System Reform: Regulatory Structure, Financial Safety, Systemic Stability and Competition Policy

1997 ◽  
Vol 8 (2) ◽  
pp. 318-332 ◽  
Author(s):  
Warren Hogan ◽  
Ian G. Sharpe
Keyword(s):  
Financial Markets ◽  
Competition Policy ◽  
Financial System ◽  
Financial Sector ◽  
System Reform ◽  
Regulatory Structure ◽  
Markets And Institutions

The paper provides an assessment of the recommendations of the Financial System Inquiry and the Government's reform proposals relating to the regulatory structure, financial safety and the mega-prudential regulator, systemic stability, and competition policy in the financial sector. It is argued that key reform proposals are based on explicit or implicit assumptions relating to the workings of financial markets and institutions. The Report fails to test those assumptions against contemporary and prospective circumstances to determine the practical worth of the recommendations.

scholarly journals ARE THE EFFECTS OF UNCONVENTIONAL MONETARY POLICY ON FINANCIAL MARKETS CAUSING BUBBLES?

2019 ◽  
Vol 1 (1) ◽  
pp. 1-1 ◽  
Author(s):  
Daniel Lacalle
Keyword(s):  
Financial Markets ◽  
Central Banks ◽  
Unintended Consequences ◽  
Quantitative Easing ◽  
Unconventional Monetary Policy ◽  
Monetary Policies ◽  
Policy Makers ◽  
The Past ◽  
Long Run ◽  
Asset Classes

Cheap money can become very expensive in the long run. Unconventional monetary policies have been the main tools of central banks to tackle the economic crisis. In this paper we aim to understand whether these policies have created distortions in the fi nancial markets and if we can be concerned about the creation of “bubbles”, considering whether quantitative easing has impacted fi nancial asset classes’ valuations beyond reasonable fundamentals. I conclude that there is empirical evidence of inordinate expansion of multiples and that central bank policy makers should include “fi nancial market infl ation” as well as consumer price indices (CPI) in their assessment of infl ation expectations. I believe that this should be an essential analysis to avoid unintended consequences in the future, and a possible next fi nancial crisis that central banks will be unable to face with the same tools of the past.

scholarly journals Retrospectives: Regulating Banks versus Managing Liquidity: Jeremy Bentham and Henry Thornton in 1802

2020 ◽  
Vol 34 (4) ◽  
pp. 195-209
Author(s):  
John Berdell ◽  
Thomas Mondschean
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Financial System ◽  
Jeremy Bentham ◽  
Credit System ◽  
Lender Of Last Resort ◽  
Financial Systems ◽  
Bank Regulations ◽  
Systemic Crisis ◽  
The Stability

At nearly the same moment, Jeremy Bentham and Henry Thornton adopted diametrically opposed approaches to stabilizing the financial system. Henry Thornton eloquently defended the Bank of England’s actions as the lender of last resort and saw its discretionary management of liquidity as the key stabilizer of the credit system. In contrast, Jeremy Bentham advocated the imposition of strict bank regulations and examinations, without which, he predicted, Britain would soon experience a systemic crisis—which he called “universal bankruptcy.” There are strong parallels but also dramatic differences with our recent attempts to reduce systemic risk within financial systems. The Basel III bank regulatory framework effectively intertwines Bentham’s and Thornton’s diametrically opposed approaches to stabilizing banks. Yet Bentham’s and Thornton’s concerns regarding the stability of the wider financial system remain alive today due to financial innovation and the politics of responding to financial crises.

Introduction

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Financial Services ◽  
Financial System ◽  
The Other ◽  
Legal Risk ◽  
The People ◽  
European Banking ◽  
Prospective Risk

This introductory chapter first sets out the book’s purpose, which is to describe and explain legal and conduct risk, and suggest possible approaches to the management of these risks. Legal risk is defined as risk arising in the operation and practices of the financial markets. They are a part of the spectrum of risks that are inherent in the operations of banks and other financial institutions, affecting the lives of the people who work there and the customers who put their trust in them as well as, in more extreme cases, the financial system itself. On the other hand, the European Banking Authority defines conduct risk as ‘the current or prospective risk of losses to an institution arising from an inappropriate supply of financial services including cases of wilful or negligent misconduct’.

scholarly journals Measurement of Systemic Risk in Global Financial Markets and Its Application in Forecasting Trading Decisions

2020 ◽  
Vol 12 (10) ◽  
pp. 4000 ◽  
Author(s):  
Jianxu Liu ◽  
Quanrui Song ◽  
Yang Qi ◽  
Sanzidur Rahman ◽  
Songsak Sriboonchitta
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Decision Model ◽  
Global Financial Crisis ◽  
Joint Models ◽  
Policy Makers ◽  
Trading Decisions ◽  
The Global Financial Crisis ◽  
First Time

The global financial crisis in 2008 spurred the need to study systemic risk in financial markets, which is of interest to both academics and practitioners alike. We first aimed to measure and forecast systemic risk in global financial markets and then to construct a trade decision model for investors and financial institutions to assist them in forecasting risk and potential returns based on the results of the analysis of systemic risk. The factor copula-generalized autoregressive conditional heteroskedasticity (GARCH) models and component expected shortfall (CES) were combined for the first time in this study to measure systemic risk and the contribution of individual countries to global systemic risk in global financial markets. The use of factor copula-based models enabled the estimation of joint models in stages, thereby considerably reducing computational burden. A high-dimensional dataset of daily stock market indices of 43 countries covering the period 2003 to 2019 was used to represent global financial markets. The CES portfolios developed in this study, based on the forecasting results of systemic risk, not only allow spreading of systemic risk but may also enable investors and financial institutions to make profits. The main policy implication of our study is that forecasting systemic risk of global financial markets and developing portfolios can provide valuable insights for financial institutions and policy makers to diversify portfolios and spread risk for future investments and trade.

scholarly journals Financial Stability: Risks, Resilience, and Policy

2020 ◽  
pp. 1-4
Author(s):  
Joseph G. Haubrich
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Financial Stability ◽  
Financial System ◽  
Financial Sector ◽  
Markets And Institutions ◽  
Recent Conference ◽  
The Stability

As the COVID-19 pandemic and its economic fallout continue, policymakers keep a watchful eye on the stability of the financial system. Having learned many lessons from the financial crisis of 2007–2009, they may again turn to that crisis for insights into potential vulnerabilities emerging in the financial sector and ways to make financial markets and institutions more resilient to shocks. At a recent conference on financial stability, 12 papers and two keynotes explored this ground. This Commentary summarizes the papers’ findings and the keynotes.

scholarly journals Knowledge About Past and Present Financial Crises in Relation to Financial Education

2021 ◽  
Vol 66 (2) ◽  
pp. 211-231
Author(s):  
Ágnes Csiszárik-Kocsir ◽  
János Varga ◽  
Mónika Garai-Fodor
Keyword(s):  
Financial Markets ◽  
Financial Literacy ◽  
Financial Crises ◽  
Financial Education ◽  
Extensive Literature ◽  
Close Attention ◽  
Additional Information ◽  
The Past ◽  
Developmental Phases ◽  
Shed Light

The crises of the past provide us aplenty of additional information to the understand the crises of the present. The crises in the past and the present have gone through very typical developmental phases in terms of their unfolding, which has already been highlighted in several studies. For this reason, it is important to know their development and operation, thus reducing the probability of future crises. It is also important to be able to distinguish the bubble from the crisis, which only occurs when the bubble bursts. However, when this happens, the effects directly or indirectly reach everyone. The level and the development of financial literacy has been a challenge not only in Hungary but also worldwide for many years. In this process, we try to understand the financial markets and to describe the tools, but how important is to discussing previous crises? In this study, we try to shed light on the knowledge of past and present crises and the related circumstances, paying a close attention on their effects in a connection of the previous financial studies with the results of a questionnaire survey conducted in 2020, basing it on extensive literature research. Our goal is to show the shortcomings of financial education, what is so important in identifying and managing crisis areas that are constantly present in the economy.

Macroprudential Policy - An Organizing Framework

Policy Papers ◽  
2011 ◽  
Vol 11 (17) ◽  
Author(s):  
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Financial Stability ◽  
Macroprudential Policy ◽  
Macroeconomic Policies ◽  
Prudential Regulation ◽  
Clear Separation ◽  
The Past ◽  
Regulation And Supervision ◽  
Global Nature

Macroprudential policy is a complement to microprudential policy and it interacts with other types of public policy that have an impact on systemic financial stability. Indeed, prudential regulation, as carried out in the past, also had some macroprudential aspects, and the recent crisis has reinforced this focus; hence, a clear separation between “micro” and “macro” prudential, if useful conceptually, is difficult to delineate in practice. Moreover, no matter how different policy mandates are structured, financial stability tends to be a common responsibility, reflecting the far reaching consequences of financial crises. This calls for coordination across policies, to ensure that systemic risk is comprehensively addressed. Equally important, macroprudential policy is no substitute for sound policies more broadly, including, in particular, strong prudential regulation and supervision, and sound macroeconomic policies. Operational independence in other policy areas, including monetary and microprudential policy, should not be undermined in the name of macroprudential policy. Finally, given the global nature of the financial system, the multilateral aspects of macroprudential policy will need to be fully considered—an important aspect that is only touched upon in this paper.

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