Regulation of Systemic Risk
Regulation of Systemic Risk
Introduction
Operational Risk: Basel II Regulation
New Models of Systemic Risk
Systemic Operational Risk – Extreme Operational Losses
Universal Banking, Universal Cultures
Macro-Cultures
Innovation and Complexity
A Seismic Model of Systemic Operational Risk
Systemic People Risks: Product Mis-selling
Market Manipulation
Legal Risks
Systemic Technology Risks
Regulation of Systemic Risk
Macroprudential Regulation
Microprudential Regulation
Overview
This chapter will consider the most up-to-date thinking on the regulation of systemic risk. Before that, however, it will document some of the official and industry inquiries into the operational risk events described in Part II, and highlight the changes to legislation such as the US Dodd–Frank Act that resulted from these inquiries.
The emergence of regulations that address systemic risks identified as occurring during the global financial crisis (GFC) has, to say the least, been patchy, and in many cases systemic has been taken to mean specific to one national banking system rather than taking a global perspective. Examples of this include the different approaches taken to the “too big to fail” problem, from the FSB designation of SIFIs, to the Volcker Rule of the Dodd–Frank Act, and the UK’s ring-fencing proposals. However, this is not a simple problem and it will undoubtedly take some time to create a workable regulatory environment.
Much of the work to date in regulatory circles has concentrated on systemic credit and liquidity risks rather than operational risks. As this book is breaking new ground, it is worth first stepping back and looking at the conclusions of the
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