Black Swans and Financial Stability: A Framework for Building Resilience

Daniel Barth and Stacey L. Schreft ()
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Stacey L. Schreft: https://www.rhsmith.umd.edu/directory/stacey-schreft

No 2025-043, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This article refines the concept of black swans, typically described as highly unlikely and catastrophic events, by clearly distinguishing between knowable and unknowable events. By emphasizing that black swans are “unknown unknowns,” the article highlights that the realization of new black swans cannot be prevented and motivates a need for policies that build the financial system's resilience to unforeseeable crises. The article introduces a "resilience principle" that calls for policies that are adaptable, universal, and systemic. Examples are provided of policies with these features, none of which relies on the official sector being better positioned than the private sector to anticipate the unknown.

Keywords: Black Swans; Systemic Risk; Uncertainty; Financial Stability (search for similar items in EconPapers)
JEL-codes: D80 E44 G01 G10 H41 (search for similar items in EconPapers)
Date: 2025-06-06
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-43

DOI: 10.17016/FEDS.2025.043

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