Fund Management and Systemic Risk - Lessons from the Global Financial Crisis

Fund managers play an important role in increasing efficiency and stability in financial markets. But research also indicates that fund management in certain circumstances may contribute to the buildup of systemic risk and severity of financial crises. The global financial crisis provided a number of new experiences on the contribution of fund managers to systemic risk. In this article, we focus on these lessons from the crisis. We distinguish between three sources of systemic risk in the financial system that may arise from fund management: insufficient credit risk transfer to fund managers; runs on funds that cause sudden reductions in funding to banks and other financial entities; and contagion through business ties between fund managers and their sponsors. Our discussion relates to the current intense debate on the role the so-called shadow banking system played in the global financial crisis. Several regulatory initiatives have been launched or suggested to reduce the systemic risk arising from non-bank financial entities, and we briefly discuss the likely impact of these on the sources of systemic risk outlined in the article

The banking crisis: Grid, group and the state of the debate

The banking crisis and the recession it induced provide a salient backdrop to domestic and international politics. The estimates that total banking losses between 2008 and 2010 exceeded US$2.3 trillion. This article uses grid-group theory to review the existing literature on the causes of the banking crisis and, in doing so, distinguishes between hierarchical, individualist, egalitarian and fatalist accounts of what went wrong and of what needs to be done to prevent another crisis from occurring. It is argued that the existing reform agenda is underpinned by a hierarchical analysis of the causes of the crisis and that this risks narrowing the support base for the reform process. © 2010 The Author Australian Journal of Public Administration © 2010 National Council of the Institute of Public Administration Australia