Friday, September 1, 2017

Systemic Risk Blog - Yale School of Management

On this blog we watch for and report any signs of potential risk to the financial system since that is clearly something that can trigger a serious financial crisis. Such a crisis could then lead to major changes in the monetary system that could impact all of us. Readers here may know we have a full page of documented articles that talk about various kinds of systemic risks identified by either the IMF or the BIS. 

However, this is not the only blog that monitors systemic risk. Did you know that the Yale School of Management has such a blog?  In fact, Yale even offers a masters degree in the study of systemic risk. It's good to know that someone else takes this topic seriously. Below is an example article from the Yale blog that talks about the risks that clearinghouses for derivatives (CCP's) have to deal with. Here are a couple of excerpt paragraphs.

Example article - The Failure of a Clearinghouse: Empirical Evidence (Banque de France)

"By insulating its members from bilateral default risk, clearinghouses, or central clearing counterparties (CCPs), play a critical role in the orderly settlement of transactions, both in over-the-counter and in exchange-based markets. Following the objective decided at the G20 Pittsburg summit in 2009, central clearing is mandatory for standardized derivatives in most countries, as regulators expect it to prevent market breakdowns or financial contagion. However, a new risk arises: the CCP itself could fail, with dramatic effects for financial stability.

Against this background, our paper is the first to empirically study the failure of a CCP by relying on internal documents from both the CCP and the major clearing member which failed. The failing CCP was the Caisse de Liquidation des Affaires en Marchandises. It was the only clearinghouse operating in the Paris Commodity Exchange, a market most active for sugar futures. Between 1973 and 1974, a six-fold increase in global sugar prices (see Figure I) spurred trading activities. Starting in November 1974, margins calls due to the collapse of prices induced the largest clearing member, and ultimately the CCP, to fail.   . . . . "


  1. Thanks. Yale site provides a list of articles, but your site compiles, synthesizes, anaylyzes, and summarizes it into much better format.

    1. Thanks Doug. Appreciate the kind words. It's interesting to me that Yale offers a masters degree in the study of systemic risk. Shows how serious the topic is I think