The Federal Reserve Bank of New York released a report today—New Directions for Understanding Systemic Risk—that presents key findings from a cross-disciplinary conference that it cosponsored in May 2006 with the National Academy of Sciences’ Board on Mathematical Sciences and Their Applications.
The pace of financial innovation over the past decade has increased the complexity and interconnectedness of the financial system. This development is important to central banks, such as the Federal Reserve, because of their traditional role in addressing systemic risks to the financial system.
To encourage innovative thinking about systemic issues, the New York Fed partnered with the National Academy of Sciences to bring together more than 100 experts on systemic risk from 22 countries to compare cross-disciplinary perspectives on monitoring, addressing and preventing this type of risk.
This report, released as part of the Bank’s Economic Policy Review series, outlines some of the key points concerning systemic risk made by the various disciplines represented—including economic research, ecology, physics and engineering—as well as presentations on market-oriented models of financial crises, and systemic risk in the payments system and the interbank funds market. The report concludes with observations gathered from the sessions and a discussion of potential applications to policy.