Academic

Anabtawi & Schwarcz on Regulating Systemic Risk

By Lawrence Solum

Iman Anabtawi and Steven L. Schwarcz (University of California, Los Angeles (UCLA) - School of Law and Duke University - School of Law) have posted Regulating Systemic Risk: Towards an Analytical Framework (Notre Dame Law Review, Vol. 86, No. 4, 2011) on SSRN. Here is the abstract:

The global financial crisis demonstrated the inability and unwillingness of financial market participants to safeguard the stability of the financial system. It also highlighted the enormous direct and indirect costs of addressing systemic crises after they have occurred, as opposed to attempting to prevent them from arising. Governments and international organizations are responding with measures intended to make the financial system more resilient to economic shocks, many of which will be implemented by regulatory bodies over time. These measures suffer, however, from the lack of a theoretical account of how systemic risk propagates within the financial system and why regulatory intervention is needed to disrupt it. In this Article, we address this deficiency by examining how systemic risk is transmitted. We then proceed to explain why, in the absence of regulation, market participants cannot be relied upon to disrupt or otherwise limit the transmission of systemic risk. Finally, we advance an analytical framework to inform systemic risk regulation.

Full post as published by Legal Theory Blog on January 06, 2011 (boomark / email).