Systemic Risk: The Effects Of Implementing Macro-Prudential Framework Tools

Since the 2007 - 2009 financial crisis, the talk and lengthy discussions about systemic risks and its implication on the stability of the global financial system has not ceased. Governments and international organizations showed increasing concerns of its serious implications,¹ "under which the world's financial system can collapse like a row of diamonds" (Steven L. Schwarcz). In the United States, for instance, the congress held lengthy hearings discussing systemic risks and its impact on the financial markets.²

According to the International Monetary Fund ("IMF"), and to the Bank of International Settlements ("BIS"), systemic risk is defined as "a risk of disruption to financial services that is caused by an impairment of all or parts of the financial system and has the potential to have serious negative consequences for the real economy".³ However, it is hard to identify which type of risks are truly systemic to the economy⁴ from the type of risks which are