Analysing systemic risk in banking and financial markets

Abstract

The deregulation of international banking and financial markets has raised a number of concerns about their fragility and risk of collapse through systemic contagion. A large amount of research has been conducted to explore policy solutions to this problem. However, there is little work in the literature which attempts to understand the various components and dimensions of systemic risk. This paper develops a comprehensive understanding of systemic risk, by using the theoretical framework provided by Perrow in his seminal book, ‘Normal Accidents’. It elaborates and exposes three of the central components — risk, complexity and coupling, which together make the modern global financial system significantly fragile. It is hoped that this understanding will create a common basis for future discussions of systemic risk and also help towards developing policy reforms.

Citation

Shah, A.K. (1997), "Analysing systemic risk in banking and financial markets", Journal of Financial Regulation and Compliance, Vol. 5 No. 1, pp. 37-48. https://doi.org/10.1108/eb024903