About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

97 Geo. L.J. 193 (2008-2009)
Systemic Risk

handle is hein.journals/glj97 and id is 195 raw text is: Systemic Risk STEVEN L. SCHWARCZ* Governments and international organizations worry increasingly about sys- temic risk, under which the world's financial system can collapse like a row of dominoes. There is widespread confusion, though, about the causes and even the definition of systemic risk, and uncertainty about how to control it. This Article offers a conceptual framework for examining what risks are truly systemic, what causes those risks, and how, if at all, those risks should be regulated. Scholars historically have tended to think of systemic risk primarily in terms of financial institutions such as banks. However, with the growth of disintermediation, in which companies can access capital-market funding with- out going through banks or other intermediary institutions, greater focus should be devoted to financial markets and the relationship between markets and institutions. This perspective reveals that systemic risk results from a type of tragedy of the commons in which market participants lack sufficient incentive, absent regulation, to limit risk-taking in order to reduce the systemic danger to others. Law, therefore, has a role in reducing systemic risk. TABLE OF CONTENTS INTRODUCTION ................................................... 194 I. DEFINING SYSTEMIC RISK ............................... 198 A. FINANCIAL INSTITUTIONS ............................ 198 B. MARKETS ....................................... 200 C. AN INTEGRATED PERSPECTIVE ......................... 202 II. REGULATING SYSTEMIC RISK ............................ 205 A. THE APPROPRIATENESS OF REGULATION ................... 205 * Stanley A. Star Professor of Law & Business, Duke University School of Law; Founding/Co- Academic Director, Duke Global Capital Markets Center. E-mail: schwarcz@law.duke.edu. © 2008, Steven L. Schwarcz. The author testified before the U.S. House of Representatives Committee on Financial Services on October 2, 2007 regarding this Article's research and recommendations. The author thanks, for their invaluable comments, Douglas Amer, Lissa Broome, Corinna Lain, Geoffrey P. Miller, Frank Partnoy, Christoph Paulus, Kunibert Raffer, Thomas Russo, Daniel Schwarcz, Joseph Sommer, Jonathan Wiener, participants in faculty workshops at Duke Law School, Fuqua School of Business, and The University of Richmond School of Law, participants in the seminar in Private Equity & Hedge Fund Law at Duke Law School, and members of the Advisory Board of the Duke Global Capital Markets Center. He additionally thanks Jonas V. Anderson, Nicholas D. George, Christopher E. Stiner, William Stewart, and Michael Sullivan for excellent research assistance, funding for which was provided in part by the Global Capital Markets Center, and Joan Magat for helpful editorial assistance.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most