'We Are All Macro-Prudentialists Now': The Brave New World Of Systemic Risk

'A specter is haunting the financial markets – the specter of systemic risk'                                           (with apologies to Karl Marx)

It wasn't long after the immediate, frenzied response to the financial crisis that governments and regulators began to turn their minds to the fault lines that had been exposed in the financial system as a whole and to ways in which these could and should be addressed. The phrase which has come to be used to describe these fault lines is 'systemic risk'.

Systemic risk has been defined as "the threat that a material event (whether an unexpected crisis, the failure of proper risk management, or the result of public policies) would result in the failure of either financial markets or a significant number of financial firms and cause significant harm to the [U.S.] economy because of the interconnections between such markets and firms" (The Financial Services Round Table, Systemic Risk Implementation: Recommendations