Systemic risk in banking ecosystems

Abstract

In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. Essentially no attention was given to their possible effects on the stability of the system as a whole. Drawing analogies with the dynamics of ecological food webs and with networks within which infectious diseases spread, we explore the interplay between complexity and stability in deliberately simplified models of financial networks. We suggest some policy lessons that can be drawn from such models, with the explicit aim of minimizing systemic risk.

Twenty Challenges for Innovation Studies

“…50 This process began in the early part of the 20 th Century before the field of innovation studies began to emerge but has intensified since (Ed Steinmueller, private communication). 51 As we now know, while individual institutions believed they were minimising the risk to themselves, the overall effect was to greatly magnify the risks to the financial system as a whole (Haldane & May, 2011).…”

Social science perspectives on natural hazards risk and uncertainty

“…calculability, resolution, etc.) or even ideological constraints, as was the case with the application of flawed financial models leading to the financial crisis of 2008 and beyond (see, for example, Best, 2010;Crotty, 2009;Haldane and May, 2011;McDowell, 2011). Some recent social analyses go further than this, contesting any teleologically purposeful system, basing their arguments for social emergence in complexity, nonlinearity and volatile systems immanence.…”

Does financial VAT affect the size of the financial sector?

“…Sharpe (1995) and Altunbas et al (2010) also show the need to use asset structure indicators (i.e., liquidity and capitalization) to assess banks' ability and willingness to supply new loans. Haldane and May (2011) sustain that the traditional rationale for such requirements is that higher requirements for banks' capital and liquid assets reduce idiosyncratic risks to the balance sheets of individual banks.…”