Systemic Risk in Banking: New Approaches Under the Current Financial Crisis

10 Pages Posted: 2 Aug 2009

See all articles by Ionica (Costache) Munteanu

Ionica (Costache) Munteanu

Alexandru Ioan Cuza University - Faculty of Economics and Business Administration

Date Written: June 11, 2009

Abstract

In the context of the current financial crisis, the stability of the financial system becomes a priority on the agenda of the national monetary authorities. Since 'systemic risk' is widely accepted as the fundamental underlying concept for the study of financial instability, this paper attempts to highlight the new dimensions of the concept in the pursuit of effective crisis management. Today, the potential for increased systemic risk is particularly related to combinations of structural trends. The increasing use of credit risk transfer instruments and other financial innovations have changed the nature of systemic risk in banking activity. Moreover, as banks have become broad-based financial institutions engaging in a full spectrum of financial services including investment banking, brokerage services, asset management or proprietary trading, their risk exposures have become considerably more complex and interdependent. Thus, the risk of bank failure triggering a chain reaction and generating negative externalities for the whole financial system is significantly grown. Consequently, there is a stringent need for appropriate regulation and for macro-prudential supervision.

Keywords: systemic risk, financial innovation, contagion effects, shadow banking system

JEL Classification: E44, E51

Suggested Citation

(Costache) Munteanu, Ionica, Systemic Risk in Banking: New Approaches Under the Current Financial Crisis (June 11, 2009). Available at SSRN: https://ssrn.com/abstract=1441800 or http://dx.doi.org/10.2139/ssrn.1441800

Ionica (Costache) Munteanu (Contact Author)

Alexandru Ioan Cuza University - Faculty of Economics and Business Administration ( email )

Bd. Carol I no.22
Iasi, RO-700505
Romania

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