Systemic risk and the financial crisis: a primerJames Bullard (), Christopher Neely () and David Wheelock () Review, 2009, issue Sep, pages 403-418 Abstract: How did problems in a relatively small portion of the home mortgage market trigger the most severe financial crisis in the United States since the Great Depression? Several developments played a role, including the proliferation of complex mortgage-backed securities and derivatives with highly opaque structures, high leverage, and inadequate risk management. These, in turn, created systemic risk - that is, the risk that a triggering event, such as the failure of a large financial firm, will seriously impair financial markets and harm the broader economy. This article examines the role of systemic risk in the recent financial crisis. Systemic concerns prompted the Federal Reserve and U.S. Department of the Treasury to act to prevent the bankruptcy of several large financial firms in 2008. The authors explain why the failures of financial firms are more likely to pose systemic risks than the failures of nonfinancial firms and discuss possible remedies for such risks. They conclude that the economy could benefit from reforms that reduce systemic risks, such as the creation of an improved regime for resolving failures of large financial firms. Keywords: Financial crises; Systemic risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:fip:fedlrv:y:2009:i:sep:p:403-418:n:v.91no.5 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Review from Federal Reserve Bank of St. Louis |
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