Andrew Gray, DTCC Managing Director and Group Chief Risk Officer, offers recommendations for managing the risk of interconnectedness in his article which first appeared in the June 2016 issue of Risk.net.
As the Lehman Brothers bankruptcy in 2008 demonstrated, the failure of one highly interconnected entity can spread rapidly across the global financial system and have a devastating impact on financial stability. The level of financial interconnectedness cannot be overstated. Banks and other financial institutions are linked through intermediation chains that span the globe, creating an elaborate web of mutual interdependencies.
“Addressing interconnectedness risks is a work in progress that will continue to evolve as our understanding of the underlying dynamics matures,” Gray said. “As such, it represents the logical next step in the evolution of an organization’s risk management capabilities.”
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