Fernando J. Cardim de Carvalho

Systemic crisis, systemic risk and the financial instability hypothesis

22 Seiten · 4,98 EUR
(September 2009)

Ich bin mit den AGBs, insbesondere Punkt 10 (ausschließlich private Nutzung, keine Weitergabe an Dritte), einverstanden

The events of 2007 and 2008, beginning with the subprime mortgage crisis in the United States, which transformed itself into a full-fledged financial crisis in early 2008 and a deep recession in the final months of the same year, have re-awakened interest in the concepts of systemic risk and systemic crisis, the author claims. These concepts have been often used in the literature in a rather cavalier manner, usually employed to refer to big events, as contrasted with turbulences of a more local dimension. A clear, rigorous understanding of what a systemic crisis means is, however, of strategic importance, not only for academic reasons but, and most importantly, because it is the starting point for the formulation of regulatory strategies directed at safeguarding the stability of the financial system as a whole. In the chapter it is shown that the most important approaches to systemic crisis were derived from interpretations of how the Great Depression of the 1930s developed. Two views emerged: one that systemic crisis happens when a fundamentally stable financial system is hit by a shock of a large dimension; the other approach, based on the theories by Keynes and Minsky, state that even stable systems evolve endogenously toward instability. As a consequence, stability regulation oriented by the first approach stresses preparedness against big shocks; regulation derived from the Keynes/Minsky approach, in contrast, stresses control of incremental leveraging that happens when prosperity is experienced for protracted periods. The chapter presents this debate and identifies the main features of a stability regulatory strategy along Keynes/Minsky lines.