Regulating Systemic Risk: Towards an Analytical Framework

The article presents an analysis of the potential for regulation to build the financial system's resiliency to the risk of collapse. It examines systemic risk's transmission process and how two independent correlations merge to transmit localized economic shocks into wider systemic crises. It states an inter-institutional correlation among markets and financial firms as well as behavioral failures that lead to market failures. It also higlights the role of regulation in systemic risk management.