Changing Perceptions of Systemic Risk in Financial Regulation

After the onset of the financial crisis in 2007, official reports noted that the crisis demonstrated failures of pre-crisis financial regulation. Since the crisis, governments, international organizations and regulators have emphasized systemic risk and financial stability as a core concern of financial regulation. A focus on interconnectedness is a critical component of the analysis of financial stability: financial market activity interconnects across territorial borders, across market sectors and through transactional linkages in ways that pre-crisis financial regulation did not effectively address. The institutional arrangements for transnational financial regulation have also changed: the G20 countries committed to a new co-ordination of financial regulation emphasizing financial stability, an enterprise commentators have characterized as a departure from the pre-crisis paradigm of networks of regulators. Public pronouncements by governments, regulators and international organizations suggest that there has been a transnational paradigm shift in financial regulation.