Systemic Risk Research Papers - Academia.edu (original) (raw)

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- Public Finance, Emerging Economies, Optimization, Monetary Policy

Objectives: Systemic risk refers to the risk of failing a financial system or the failure of the entire market. This risk can arise from the instability or crisis in financial institutions and transfer to the whole of the financial system, through contagion. In other words, the systemic risk could be seen as the degree of the interconnection between different divisions of a financial system, where a failure in a financial institution may lead to a whole system crisis. Method: In this paper, we study systemic risks in the Iranian banking sector by using two crucial systemic risk measures, the MES (marginal expected shortfall) and Co-VaR. To compute both measures, we employ Engle's dynamic conditional correlation model. Results: According to our results, although these two systemic risk measures differ in defining the contributions to systemic risk, both are qualitatively very similar in explaining the cross-sectional differences in systemic risk contributions across banks. In addition, using a threshold VAR model, we suggest an overall systemic risk measurethe aggregate MESand its associated threshold value for use as an early warning indicator. The paper is innovative in applying statistical models (dynamic conditional correlation model) to seek for a reliable commercial banks rating, using by approaches MES and COVAR.

- by Reza Eyvazloo and +1
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- Systemic Risk, Threshold VAR

Abstract: This paper is one chapter of the volume “Regulation and Economics” of the second edition of the Encyclopedia of Law and Economics. The authors review the economics of banking and financial markets and the regulatory response to market failure. Market failure in finance depends on problems of information and externalities. Regulation addresses these problems through conduct of business rules

- by Dirk Heremans and +1
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- Corporate Governance, Law and Economics, Regulation Economics, Global Financial Crisis

When there are widespread bank failures, deposit insurance agencies such as the Federal Deposit Insurance Corporation (FDIC) …nd it di¢ cult to sell failed banks at attractive prices. Thus, the deposit insurance fund su¤ers higher drawdowns per dollar of insured deposit when there is a systemic crisis. In turn, the actuarially-fair deposit insurance premium that is charged ex ante to banks increases in joint failure risk in addition to individual failure risk. Further, since bank closure policies re ‡ect greater forbearance in a systemic crisis, banks have incentives to herd. The incentive-e¢ cient premium that accounts for such moral hazard requires a higher charge for joint failure risk than the actuarially-fair one. Similarly, as large bank failures are more likely to be associated with asset …re sales (and regulatory forbearance), the e¢ cient premium for large banks is higher per dollar of insured deposits compared to that for small banks.

- by João Santos
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- Economic policy, Rate of return, Newspaper, Federal Reserve

Using the hedge fund industry as our laboratory setting, we examine whether bank bailout programs initiated in seven countries during the 2007-2009 global financial crisis reduced counterparty risk in the financial system. Hedge funds have extensive and economically significant ties to banking institutions and these links spurred fears of systemic risk among regulators and investors. We find that the rescue of financial institutions offering prime brokerage, custodial and investment advisory services to hedge funds was followed by a reduced probability of hedge fund liquidation in the short term (up to six months). However, only the rescue of custodians reduced hedge fund illiquidity or the ability of funds to meet clients" redemption requests.

- by Robert Faff
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- Hedge Funds, Global Financial Crisis, Financial Crisis, Financial System

Systemic risk is a key concern for central banks charged with safeguarding overall financial stability. In this paper we investigate how systemic risk is affected by the structure of the financial system. We construct banking systems that are composed of a number of banks that are connected by interbank linkages. We then vary the key parameters that define the structure of the financial system -including its level of capitalisation, the degree to which banks are connected, the size of interbank exposures and the degree of concentration of the system -and analyse the influence of these parameters on the likelihood of contagious (knock-on) defaults. First, we find that the better capitalised banks are, the more resilient is the banking system against contagious defaults and this effect is non-linear. Second, the effect of the degree of connectivity is non-monotonic, that is, initially a small increase in connectivity increases the contagion effect; but after a certain threshold value, connectivity improves the ability of a banking system to absorb shocks. Third, the size of interbank liabilities tends to increase the risk of knock-on default, even if banks hold capital against such exposures. Fourth, more concentrated banking systems are shown to be prone to larger systemic risk, all else equal. In an extension to the main analysis we study how liquidity effects interact with banking structure to produce a greater chance of systemic breakdown. We finally consider how the risk of contagion might depend on the degree of asymmetry (tiering) inherent in the structure of the banking system. A number of our results have important implications for public policy, which this paper also draws out.

- by Amadeo Alentorn
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- Economic Theory, Applied Economics, Financial System, Systemic Risk

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. In this paper we identify some of the main factors behind systemic risk in a set of international large-scale complex banks using the novel CoVaR approach. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find no evidence that a larger size increases systemic risk within the class of large global banks. We also show that the sensitivity of system-wide risk to an individual bank is asymmetric across episodes of positive and negative asset returns. Since short-term wholesale funding emerges as the most relevant systemic factor, our results support the Basel Committee's proposal to introduce a net stable funding ratio, penalizing excessive exposure to liquidity risk.

In this paper, we discuss the increasing interdependence of societies, focusing specifically on issues of systemic instability and fragility generated by the new and unprecedented level of connectedness and complexity resulting from globalization. We define the global system as the set of tightly-coupled interactions that together allow for the continued flow of information, capital, goods, services, and people. Using the general concepts of globality, complexity, networks, and the nature of risk, we analyze case studies of infrastructure, trade, finance, the environment, and epidemiology in order to develop empirical support for this concept of global systemic risk. We seek to identify and describe the sources and nature of such risks and methods of thinking about risks which may inform future academic research and policymaking decisions.

- by Miguel Centeno
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- Marketing, Sociology, Globalization, Systemic Risk

Concentrating Solar Power (CSP) plants are a promising technology of renewable energy production, as witnessed by the increasing public and private investments during the last decade. The assessment of the associated risks of business interruption (loss of production) and loss of assets due to the occurrence of undesired internal or external events, such as failures of components, unfavorable environmental conditions, etc., brings added values by informing design modifications and contributing to production assurance, for rational Company investments in these environmentally sustainable power plants. This work presents and applies a methodology for assessing the risks associated to a CSP of innovative design. The methodology is derived from traditional system risk analysis, specifically focused only on the economic consequences of the internal events of failure behavior of components. The innovation in the design considered is particularly aimed at augmenting the CSP intrinsic capability of being equipped with thermal storage systems by the introduction of a molten salt mixture as heat transfer fluid. This technology presents evident advantages in terms of system simplification and reduction of production costs but on the other hand introduces a risk factor with regards to the solidification of the salt mixture that occurs at about 240 C.

- by Michele Compare
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- Mechanical Engineering, Design, Renewable Energy, Methodology

The new Basel II regulation contains a number of new regulatory features. Most importantly, internal ratings will be given a central role in the evaluation of the riskiness of bank loans. Another novelty is that retail credit and loans to small and medium-sized enterprises will receive a special treatment in recognition of the fact that the riskiness of such exposure derives to a greater extent from idiosyncratic risk and much less from common factor risk. Much of the work done on the differences between the risk properties of retail, SME and corporate credit has been based on parameterized models of credit risk. In this paper we present new quantitative evidence on the implied credit loss distributions for two Swedish banks using a non-parametric Monte Carlo re-sampling method following Carey [1998]. Our results are based on a panel data set containing both loan and internal rating data from the banks' complete business loan portfolios over the period 1997-2000. We compute the credit loss distributions that each rating system implies and compare the required economic capital implied by these loss distributions with the regulatory capital under Basel II. By exploiting the fact that a subset of all businesses in the sample is rated by both banks, we can generate loss distributions for SME, retail and corporate credit portfolios with a constant risk profile. Our findings suggest that a special treatment for retail credit and SME loans may not be justified. We also investigate if any alternative definition of SME's and retail credit would warrant different risk weight functions for these types of exposure. Our results indicate that it may be difficult to find a simple risk weight function that can account for the differences in portfolio risk properties between banks and asset types.

- by Tor Jacobson and +1
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- Monte Carlo, Panel Data, Economic Capital, Sampling methods

The paper suggests that AI ethics should pay attention to morally relevant systemic effects of AI use. It draws the attention of ethicists and practitioners to systemic risks that have been neglected so far in professional AI-related codes of conduct, industrial standards and ethical discussions more generally. The paper uses the financial industry as an example to ask: how can AI-enhanced systemic risks be ethically accounted for? Which specific issues does AI use raise for ethics that takes systemic effects into account? The paper (1) relates the literature about AI ethics to the ethics of systemic risks to clarify the moral relevance of AI use with respect to the imposition of systemic risks, (2) proposes a theoretical framework based on the ethics of complexity and (3) applies this framework to discuss implications for AI ethics concerned with AI-enhanced systemic risks.

The aim of this study is to present the new architecture of the European financial supervision the necessity of which had been brought into sharp focus by its deficiencies in the current financial crisis. The study presents through the prism of the report edited by the de Larosiere Group the main generating elements of the financial crisis, the deficiencies of the risk management, of corporate governance regulations, the lack in applying the regulation framework and in supervision regarding risk management.

- by Petra Petru
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- Corporate Governance, Risk Management, Financial Crisis, Systemic Risk

В статті розглянута макропруденційна політика центральних банків, висвітлено алгоритм прийняття рішень щодо застосування макропруденційних інструментів та їх класифікація, пов’язаних із забезпеченням фінансової стабільності системи та окремих її елементів. Проаналізовано ефективність використання основних макропруденційних інструментів в екстрополяції на пом’якшення проявів системного ризику. Визначено напрями взаємодії макропруденційної та грошово-кредитної політики.

- by Olga Polikarpova
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- Systemic Risk, Macroprudential Policy

Ethics is an ancient matter for human kind, from the origin of civilizations ethics have been related with the most relevant human concerns and determined human behavior. Ethics was initially related to religion, politics and philosophy to then be fragmented into specific disciplines and communities of practice. The undergoing digital revolution enabled by Artificial Intelligence and Big Data are bringing ethical wicked problems in the social application of these technologies. However, a broader perspective is also necessary. We now face global challenges that affect groups and individuals, specially those that are most vulnerable, but cannot reduced only to individual-oriented solutions. Thus, ethics has to consider the several scales in which the current complex society is organized and the interconnections between different systems. Ethics should also give a response to the systemic changes in individual to collective behavior produced by external factors and threats. Furthermore, Artificial Intelligence and digital technologies are global and make humans more connected and smart but also more homogeneous, predictable and ultimately controllable. Ethics must take a stand to preserve and keep promoting individuals rights and uniqueness and cultural heterogeneity. The digital revolution has been so far an industry-driven movement, so it is necessary to establish mechanisms to ensure that the society becomes conscious about its own future. Finally, Artificial Intelligence has advanced through the ambition to humanize matter, so we should expect ethics to give a response to the future status of machines and their interactions with humans.

- by David Pastor-Escuredo
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- Artificial Intelligence, Ethics, Resilience, Sustainable Development

The collapse of the global financial industry in 2008 and the subsequent decay of most Western economies into a period of prolonged economic stagnation have represented a springboard for the progressive growth of alternative channels of financial intermediation. The reluctance and inability of mainstream banks in the post-crisis years to provide credit facilities to the real economy, most critically to start-ups and small and medium-sized enterprises, propelled the latest wave of financial innovation, this time under the guise of FinTech. Much has been written on the rise of FinTech in recent years, but there is still insufficient clarity about the benefits that this phenomenon is bringing to the real economy and the potential risks that can arise from its growth. This paper maps the development of FinTech lending platforms in the UK and reconceptualises the rationale for their growth. In doing that, this study focuses on the structure and operation of the main UK platforms, recognising that while some are effectively banks that adopt a technology-based business model, many platforms operate under the P2P business model. The question then is to assess the policy and regulatory approach that is relevant to UK P2P platforms. Interestingly, the emergence of P2P securitisation raises a number of regulatory and policy questions, because longer intermediation chains typical of securitisation may well defy the social and economic purposes under which the idea of P2P developed. Furthermore, questions of systemic risk inevitably resurface in these types of transactions. Ensuing problems related to the best way to regulate these new channels of financial intermediation lead to critically evaluate the initiatives launched by the UK FCA, initially under the Innovation Hub, and more recently under the consultation for a new regulatory framework. Keywords P2P lending · FinTech · Financial intermediation · Market-based finance · P2P securitisation · Financial conduct authority · Credit risk · Systemic risk Only in the financial world is there such an efficient design for concealing what, with the passage of time, will be revealed as self-and general delusion

- by Vincenzo Bavoso
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- Financial Regulation, Credit Risk, Securitisation, P2p Lending

This study considers the relationship between a global systemic banking, monetary and solvency crisis and its implications for the real-time flow of goods and services in the globalised economy. It outlines how contagion in the financial system could set off semi-autonomous contagion in supplychains globally, even where buyers and sellers are linked by solvency, sound money and bank intermediation. The cross-contagion between the financial system and trade/production networks is mutually reinforcing.

Prognostics methods are being developed to evaluate the reliability of a system in its actual life-cycle conditions, to estimate the times to failure and to mitigate system risks. A key requirement in any prognostics method is identification of the appropriate parameter(s), which, can be used to asses impending failure, if monitored. This paper presents a physics-of-failure based methodology, which uses failure modes, mechanisms and effects analysis (FMMEA) to enhance prognostics planning and implementation. Also presented are two ways of implementing the FMMEA based methodology.

- by Sony Mathew
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- Life Cycle, Prognostics and Health Management, Systemic Risk, Failure Mechanism

This document presents four scenarios for the future of finance. The goal of our study is to imagine the future of finance and to identify challenges faced by policymakers in fighting systemic risk. It builds upon a tradition within the CPB to develop scenarios for policy analysis. We develop four scenarios for the future of finance. Our scenarios differ in two dimensions. First, to what extent soft information lies at the core of banks’ business. Second, to what extent scope economies exist between different banking activities. By combining these two dimensions, we obtain four scenarios: Isolated Islands, Big Banks, Competing Conglomerates, and Flat Finance. Market structure, market failures, and government failures vary between scenarios. These differences then translate into differences in the complexity of balance sheets, the ability to coordinate policy internationally, the information gap faced by regulators, the size of banks’ balance sheets, the tradability of banks’ assets,...

- by Michiel Van Leuvensteijn
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- Market Structure, Policy Analysis, Market Discipline, Systemic Risk

Against a background of far-reaching structural change in the banking sector, this article reviews the recent academic literature on developments in European banking. European banking markets have become increasingly integrated in recent years, but barriers to full integration, especially in retail banking, still remain. European integration has possible implications for systemic risk, and poses various challenges for the current supervisory framework. The banks' responses to the changing competitive environment include the pursuit of strategies of diversification, vertical product differentiation and consolidation. European integration has implications for competition in banking markets, for the nature of long-term borrower-lender relationships, and for the relationships between ownership structure, technological change and bank efficiency. The article concludes by reviewing recent literature on the credit channel in the monetary transmission mechanism, and interest rate pass-through.

- by John O. S. Wilson
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- Applied Mathematics, European integration, Banking, Competition

Recent advances in empirical finance have shown that the adoption of network theory is critical in order to understand contagion and systemic vulnerabilities. While in-terdependencies among financial markets have been widely examined, only a few studies review networks, and they do not focus on the econometrics aspects. This paper presents a state-of-the-art review on the interface between statistics and econometrics in the inference and application of Bayesian graphical models. We specifically highlight the connections and possible applications of network models in financial econometrics in the context of systemic risk.

- by Daniel Felix Ahelegbey
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- Graphical Models, Financial Crisis, Bayesian Inference, Model Selection
- by Ismail Erturk
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- Western Europe, Content Management, Financial Crisis, Financial System

The likelihood that the firm's information systems are insufficiently protected against certain kinds of damage or loss is known as "systems risk." Risk can be managed or reduced when managers are aware of the full range of controls available and implement the most effective controls. Unfortunately, they often lack this knowledge and their subsequent actions to cope with systems risk are less effective than they might otherwise be. This is one viable explanation for why losses from computer abuse and computer disasters today are uncomfortably large and still so potentially devastating after many years of attempting to deal with the problem. Results of comparative qualitative studies in two information services Fortune 500 firms identify an approach that can effectively deal with the problem. This theory-based security program includes: (1) use of a security risk planning model, (2) education/training in security awareness, and (3) Countermeasure Matrix analysis. abroad, the Local Government Audit Inspectorate (1981). Estimates of annual losses vary, but some set losses at between 500millionand500 million and 500millionand5 billion per year in the U.S. alone . If anything, losses have become even more serious as time goes on .

- by Detmar Straub and +1
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- Information Systems, Decision Making, Action Research, Applied Economics

May 2011 was a very bad month for UK banks. In the previous month, a longrunning legal case was resolved when the UK High Court ruled against the British Bankers' Association, which had petitioned for a judicial review of regulatory action concerning mis-selling of payment protection insurance (PPI) products. Following the ruling, the four major UK banks announced provisions totaling over £6 billion to cover restitution to buyers of their PPI products. Some of the banks also decided to exit the PPI business. At first glance, PPI appears to be a standard insurance product. For an up-front or monthly premium, an insurer will sell protection to a borrower against being unable to make loan repayments, as a result of illness or unemployment, for example. Before the market collapsed, the main distributors/arrangers of PPI contracts were the largest UK banks, often using their affiliated insurance subsidiary as the insurer. The underlying problems that generated the so-called PPI scandal should not have come as a complete surprise to the banks. For several years prior to the ruling, consumer advocacy groups had been complaining loudly about banks selling PPI products to customers who did not fully understand the policies and, in many cases, did not need the protection provided. Yet, having seemingly taken on a life of its own, the practice of selling PPI policies continued and grew rapidly in all major banks. Various official inquiries found that the "people" involved, including frontline bank staff, lending managers and insurers, simply did not exercise the due diligence necessary to check the suitability of PPI for many customers. Prudence seems to have been diluted or even abandoned in a chase for increased product volume across the whole UK retail banking sector. This paper argues that the losses incurred as a result of the PPI scandal were, in most part, precipitated by systemic operational risk, particularly people-related risks. Using examples from official inquiries, this paper identifies some of the people risk that went unmanaged in this part of the UK retail banking sector system, until the PPI market seized up in 2011. The paper then suggests proactive approaches to people risk management that should help to detect and minimize the impact of similar scandals in the future. This topic is important as the demographic shift toward longer periods of retirement and the prevalence of the "universal banking model" means that nontraditional banking products such as insurance, pensions and investments will be increasingly sold through banks, raising the specter of further mis-selling scandals in the future. 79 80 P. McConnell and K. Blacker 1 The term "scandal" as used in the UK press implies a value judgment that is not meant here. However, other terms such as "disaster" would be an overstatement because human life was not lost, "crisis" implies an element of surprise that was not present, and "operational loss event" does not describe the outrage generated by what transpired. 2 PPI was originally known in the industry as accident, sickness and unemployment insurance as it related to covering these types of risks when a loan was taken out. 3 Note that the total population of the United Kingdom in 2011 is estimated at less than 62 million, implying that PPI products were widely used by the adult population.

- by Patrick McConnell and +1
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- Operational Risk, Systemic Risk

About a quarter of the Netherlands is below mean sea level. Without flood protection structures, about two-third of the country would be flooded during storm surges at sea or high discharges in the rivers. That is why in a country such as the Netherlands, protection against flooding is an important task. This protection is provided by an extensive system of so-called primary flood protection structures. The appropriate Legislation, Safety Standards and the Flood Management System have been developed by the Dutch Government to support her safety policy.

- by Krystian Pilarczyk
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- Legislation, Systemic Risk, Storm surge, Flood Management

Ethics is an ancient matter for human kind, from the origin of civilizations ethics have been related with the most relevant human concerns and determined cultures. Ethics was initially related to religion, politics and philosophy to then be fragmented into specific communities of practice. The undergoing digital revolution enabled by Artificial Intelligence and Data are bringing ethical wicked problems in the social application of these technologies. However, a broader perspective is also necessary. We now face global and highly dynamics challenges that affect groups and individuals, specially those that are most vulnerable. Individual-oriented ethics are no longer sufficient, the new ethic has to consider the several scales in which the current complex society is organized and the interconnections between different systems. Ethics should also give a response to the systemic changes in behavior produced by external factors and threats. Furthermore, AI and digital technologies are g...

- by David Pastor-Escuredo
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- Artificial Intelligence, Ethics, Resilience, Sustainable Development

Markov state switching models are a type of specification which allows for the transition of states as an intrinsic property of the econometric model. Such type of statistical representations are well known and utilized in different problems in the field of economics and finance. This paper gives an overview of MS Regress, a MATLAB toolbox specially designed for the estimation, simulation and forecasting of a general markov regime switching model. The package was written in an intuitive manner so that the user have at its reach a large number of different markov switching specifications, without any change in the original code. This document introduces the main functionality of the package with the help of several empirical examples.

- by Marcelo Perlin
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- Macroeconomics, Forecasting, Systemic Risk, Business Cycles

The globalised economy has become more complex (connectivity, interdependence, and speed), delocalized, with increasing concentration within critical systems. This has made us all more vulnerable to systemic shocks. This paper provides an overview of the effect of a major pandemic on the operation of complex socio-economic systems using some simple models. It discusses the links between initial pandemic absenteeism and supply-chain contagion, and the evolution and rate of shock propagation. It discusses systemic collapse and the difficulties of re-booting socio-economic systems.

- by David Korowicz
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- Societal Collapse, Complexity Science, Contagion, Pandemic preparedness
- by Leon Perlman
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- Telecommunications, Convergence, Kenya, Money

How did problems in a relatively small portion of the home mortgage market trigger the most severe financial crisis in the United States since the Great Depression? Several developments played a role, including the proliferation of complex mortgage-backed securities and derivatives with highly opaque structures, high leverage, and inadequate risk management. These, in turn, created systemic risk - that is,

- by Christopher Neely
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- Risk Management, Great Depression, Financial Crisis, United States

We explore whether a Financial Transactions Tax (FTT) is likely to correct the market failures that have contributed to the financial crisis, to what extent FTT succeeds in raising revenues, and how the FTT compares to alternative taxes in terms of efficiency. We find little evidence that the FTT will be effective in correcting market failures. Taxing of transactions is not well targeted at behaviour that leads to excessive risk and systemic risk creation. The empirical evidence does not suggest that the introduction of an FTT reduces volatility or asset price bubbles. An FTT will likely raise significant revenues and we estimate those revenues for the Netherlands. In the short term, the incidence of the tax will be chiefly on the current holders of securities. Ultimately, the tax will be borne in part by end users, and we estimate the likely effects on economic growth. When compared to alternative forms of taxation of the financial sector, the FTT is likely less efficient given the amount of revenues. In particular, taxes that more directly address existing distortions, such as the current VAT exemption for banks, and the bias towards debt financing, provide more efficient alternatives.

- by Marcel Lever
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- Economic Growth, Financial Crisis, Financial Sector, Systemic Risk

Studies in Applied Linguistics and Language Learning brings together new and original studies in the area of critical applied linguistics, language policy and planning, and language learning and teaching. The book, divided into three sections, first offers critical views on various aspects of language in society, ranging from the construction of national identity, language and justice, racial and identity issues in the ELT industry, to language in business discourse. It then reports on language policy in the school curriculum, language learning in tertiary education, and Aboriginal languages policy. In the third section, it addresses issues in language learning and teaching, such as the role of parents in literacy learning, multiple script literacy, and language learning and maintenance strategies.

- by Ahmar Mahboob and +1
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- Languages and Linguistics, Teacher Education, Critical Pedagogy, TESOL

The OTC derivatives markets all over the world have shown tremendous growth inrecent years. In the wake of the present financial crisis, which is believed to have beenexacerbated by OTC derivatives, increasing attention is being paid to analysing theregulatory environment of these markets. In this context, we analyse the regulatoryframework of the OTC derivatives market in India. The paper, inter alia, seeks toprove the point that the Indian OTC derivatives markets, unlike many otherjurisdictions, are well regulated. Only contracts where one party to the contract is anRBI regulated entity are considered legally valid in India. A good reporting systemand a post-trade clearing and settlement system, through a centralised counter party,has ensured good surveillance of the systemic risks in the Indian OTC market.From amongst the various OTC derivatives markets permitted in India, interest rateswaps and foreign currency forwards are the two prominent markets. However, byinternational standards, the total size of the Indian OTC derivatives markets stillremains small because credit default swaps were conspicuously absent in India untilnow. It appears that Indian OTC derivatives markets will grow fast once again afterthe present financial crisis is over. This research paper explores those open issues thatare important to ensure market stability and development. On the issue of the muchdiscussed competition between exchange-traded and OTC-traded derivatives, webelieve that the two markets serve different purposes and would contribute more torisk management and market efficiency, if viewed as complementary. Regarding theintroduction of new derivative products for credit risk transfer, the recentannouncement by the RBI that it would introduce credit default swaps is a welcomesign. We believe that routing of credit default swaps through a reporting platform andmanaging its post-trade activities through a centralised counterparty would providebetter surveillance of the market. Strengthening the position of the ClearingCorporation of India Ltd. (CCIL) as the only centralised counterparty for Indian OTCderivatives market and better supervision of the off-balance sheet business offinancial institutions are two measures that have been proposed to ensure the stabilityof the market.

- by Francis Rathinam
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- Risk Management, Stability, Applied Economics, Financial Crisis
- by Charles Kramer
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- Systemic Risk, Banking system
- by Anita Anand
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- Law, Regulation, Financial Crisis, Financial Institutions
- by Sukarela Batunanggar
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- Crisis Management, Capacity Building, Papua New Guinea, Financial System
- by Olivier Mahul
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- Climate Change, Transaction Costs, Microfinance, Capital Markets

Ethics and risk management are interrelated. They represent the essence of responsible and sustainable business which is based upon trust, the building of mutually beneficial relationships with shareholders, an understanding of risk and the balancing of risk and return. Directors and boards need to ensure that policies, frameworks and governance arrangements are in place to ensure ethical conduct and decision making and effective risk management. Raises issues and questions for directors ahead of the 2017 Global Convention on Corporate Ethics and Risk Management. Published on-line as: Coulson-Thomas, Colin (2017), [Theme Paper for Global Convention on Corporate Ethics and Risk Management] Corporate Ethics and Risk Management in an Uncertain World, www.iodglobal.com, [http://www.iodglobal.com/images/risk-mgmt-2017/theme-paper.pdf], 6th January

Research has identified the confidentiality, integrity and aveilubility of information as vital concepts. However, in developing counter-measuras to threats in these three areas the focus has been on questions such as computer viruses, hacking, system failures and access control. Thus the primary coecern has been for the technical installations and their functionality, in co,~;~mut this research sees information technology usage in terms of the integrity and the wholeness of systems, social as well as technical. It argues that by maintaining the integrity of information systems, the risks associated with information technology usage can be minimized.

Modern, globalised financial markets are the offspring of a process of liberalisation of capital that started with the collapse of Bretton Woods in the 1970s and culminated with a number of regulatory changes in the 1980s and 1990s. As a consequence of that process, financial markets have grown dramatically and become increasingly integrated at a global level. Importantly, the growth and innovation that occurred over the past decade has taken place in the realm of capital market finance, and in particular in the context of market-based channels that revolved chiefly around securitisation and repo transactions. As a result, new debt transactions and products have been engineered since the 1980s. This article contends that, contrary to conventional belief, the excessive development of market-based channels of finance has been one of the catalysts behind the crises and scandals exploded over the past fifteen years. In particular, the employment of innovative debt transactions was instrumental to the creation of excessive levels of risk-taking and leverage. These had catastrophic consequence, both at firm level and at systemic level. Notwithstanding the regulatory measures that have been enacted over the past fifteen years, the way in which debt transactions in capital markets are designed and entered into remains lightly or indirectly regulated. Moreover , regulators have so far neglected the role that leverage and debt creation have in the economy and the consequence that these phenomena have on the wider social context. On the contrary, recently the EU has promoted the implementation of an old design, namely the Capital Markets Union (CMU). This revolves around market-based forms of financing, which should represent an alternative to the traditionally predominant (in Europe) bank-based financing channels. This article contends that the CMU framework fails to appreciate the dangers associated with capital markets finance and its ensuing debt creation effects. It argues that, despite some regulatory efforts, a suitable architecture for the regulation of market-based channels of finance is still missing.

- by Vincenzo Bavoso
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- Capital Markets, Financial Markets, Financial Regulation, Securitisation

Comment l’identification de l’étendue, des dysfonctionnements et de l’intérêt du shadow banking doit-elle guider sa régulation ? En quoi la notion de risque, intrinsèque et systémique, constitue-t-elle le point central de compréhension et... more

Gringotts Wizarding Bank is well known as the only financial institution in all of the Wizard-ing UK as documented in the works recounting the heroics of Harry Potter. The concentration of power and wealth in this single bank needs to be weighed against the financial stability of the entire Wizarding economy. This study will consider the impact to financial risk of breaking up Gringotts Wizarding Bank into five component pieces, along the lines of the Glass-Steagall Act in the United States. The emphasis of this work is to calibrate and simulate a model of the banking and financial systems within Wizarding UK under varying stress test scenarios simulating rumors of Lord Voldemort's return or the release of magical creatures into an unsuspecting muggle populace. We conclude by comparing the economic fallout from financial crises under the two systems: (i) Gringotts Wizarding Bank as a monopoly and (ii) the split-up financial system. We do this comparison on the level of minimal system-wide capital injections that would be needed to prevent the financial crisis from surpassing the damage caused by Lord Voldemort.

The aim of this study is to assess the contributions of investment banking to the economy with a particular focus on the German economy. To this end we analyse both the economic benefits and the costs stemming from investment banking. The study focuses on investment banks as this part of banking is particularly relevant for financing companies as well as

- by Reint Gropp
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- Financial Crisis, Investment Banking, Financial System, Financial Institutions
- by Stijn Claessens
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- Systemic Risk