Home | Databases | WorldLII | Search | Feedback Edited Legal Collections Data

Gray, Dale F.; Jobst, Andreas A. --- "Systemic Contingent Claim Analysis – A Model Approach to Systemic Risk" [2011] ELECD 491; in LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder (eds), "Managing Risk in the Financial System" (Edward Elgar Publishing, 2011)

Book Title: Managing Risk in the Financial System

Editor(s): LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857933812

Section: Chapter 6

Section Title: Systemic Contingent Claim Analysis – A Model Approach to Systemic Risk

Author(s): Gray, Dale F.; Jobst, Andreas A.

Number of pages: 18

Extract:

6. Systemic contingent claim analysis ­
a model approach to systemic risk
Dale F. Gray and Andreas A. Jobst1

6.1. INTRODUCTION

Since 2008 unprecedented and sweeping crisis interventions have arrested
a market panic, effectively stabilized the global financial system, and
helped shore up investor confidence. In spite of this positive development,
the encouraging picture has been tainted by mounting concerns surround-
ing the fiscal positions of sovereigns that have borrowed excessively to
stabilize their financial systems and the related potential for contagion
across the most vulnerable countries. Support measures provided to large
financial institutions have resulted in considerable risk transfer to the
government, which has intensified concerns about overall long-term fiscal
sustainability as a swift recovery of the financial sector remains uncer-
tain.2 Moreover, the unresolved moral hazard problem of large complex
financial institutions (LCFIs) that are deemed `too-important' or `too-
networked' to fail, continues to imply large contingent liabilities for the
public sector. Such contingent liabilities may imperil fiscal sustainability
as they increase the susceptibility of public finances to the potential impact
of systemic distress in the financial sector.
Given the elusive nature of systemic financial risk3 from these contingent
liabilities, policy-makers recognize the need for a multi-faceted approach
comprising complementary measures in areas of regulatory policies,
supervisory scope, and resolution arrangements as part of a sustainable
solution towards a more resilient financial sector. Current policy efforts
are aimed at establishing a regulatory framework that helps mitigate sys-
temic risk from linkages between institutions ...