Systemic Risk - Discussion by Alexander, Eatwell, Dhumale
April 17, 2008 – 7:39 pm
In their book “Global Governance of Financial Systems” the authors try to define the various dimensions of Systemic Risk. The CMAP (click on the picture to see the full picture) outlines the main concepts that the authors introduce.
Systemic risk is defined as…
a negative externality that imposes costs on society at large.
The aim of prudential regulation is to contain various kinds of risks, such as credit risk, concentration risk, market risk, settlement risk, liquidity risk, and operation risk.
The regulator’s taks is to internalize the negative externality of risk, ensuring that investors take into account the risks their activities impose on society.
Financial conglomerates, which is according to the authors the attempt by banks to manage risks, diversify earnings by investing in various jurisdictions, make it more and more difficult for national regulators to contain the risk and to avoid contagion.
Topics of this post: conglomerates, contagion, definition, Discussions, John Eatwell, Kern Alexander, Rahul Dhumale, systemic risk
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