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

Bengtsson, E. (2013). Fund Management and Systemic Risk - Lessons from the Global Financial Crisis (Report No. 2013-06). London, UK: City Political Economy Research Centre (CITYPERC) Working Papers, Department of International Politics, City University London.

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Abstract

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.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Systemic risk; shadow banking; fund management; credit risk transfer; liquidity risk; financial crisis
Subjects: H Social Sciences > HG Finance
Divisions: School of Social Sciences > Department of International Politics > CITYPERC Working Paper Series
URI: http://openaccess.city.ac.uk/id/eprint/2116

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