Safety first

Systemic risk is a topic that keeps cropping up in conversations with regulators these days. The argument goes something like this: with credit spreads hovering at close to record lows, investors aren't being adequately compensated for the risk they are taking. A serious market shock could cause spreads to widen sharply, liquidity to dry up and asset correlations to shift, causing sizeable losses for investors.

At the same time, say regulators, investors have increased their exposure to complex