A Systems Accident Approach to Systemic Financial Risk

Journal of Financial Transformation, Vol. 35, pp. 39-48, September 2012

Posted: 1 Oct 2012 Last revised: 22 Apr 2014

See all articles by Joseph Calandro, Jr.

Joseph Calandro, Jr.

Fordham University - Gabelli Center for Global Security Analysis

Date Written: September 1, 2012

Abstract

This paper proposes a definition and assessment methodology for systemic financial risk that was inspired by systems accident research. Sociologist Charles Perrow found that industrial, aviation and marine systems are prone to failure if those systems are interactively complex and tightly coupled. Using that framework as a starting point, financial crisis research led to the definition of systemic financial risk as a function of financial complexity and excessive leverage. I present practical criteria for applying these parameters, and then profile the triggering mechanism of systemic financial risk -- financial contagion -- in a behavioral context consistent with my framework. A discussion of the current state of systemic financial risk is then offered. By practically defining systemic financial risk in the context of financial crisis case histories (with a focus on contemporary history) this paper facilitates a deeper and more practical understanding of this important, yet seemingly elusive phenomenon. And it does so in a manner readily assessable to a broad array of financial agents and researchers.

Keywords: Systemic risk, systems accident, financial complexity, excessive leverage, financial contagion

JEL Classification: E19, G15, G20

Suggested Citation

Calandro, Jr., Joseph, A Systems Accident Approach to Systemic Financial Risk (September 1, 2012). Journal of Financial Transformation, Vol. 35, pp. 39-48, September 2012 . Available at SSRN: https://ssrn.com/abstract=2155087

Joseph Calandro, Jr. (Contact Author)

Fordham University - Gabelli Center for Global Security Analysis ( email )

531 Hughes Hall
441 E. Fordham Rd
Bronx, NY 10458
United States

HOME PAGE: http://www.linkedin.com/in/josephcalandro/

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
327
PlumX Metrics