Financial System Resilience Index

Author: New Economics Foundation

Date: 21/11/2015

 

The factors influencing how complex systems – be they ecosystems or banking systems – respond to shocks are many and varied, involving the specific kinds of interconnections among components, the overall size of the system, transparency, and other factors.

 

My own interests were as a physicist, at Sydney University and at Harvard. But early engagement with environmental issues led me to the study of stability and complexity in model ecosystems, first at Princeton and now at Oxford. When problems developed in the banking system, around 2008, there seemed to me to be significant read-across from work on ecological systems. During my term as Chief Scientific Adviser to the Major and Blair governments, I had come to know Mervyn King. He, in turn, introduced me to Andrew Haldane, and we worked together on issues of stability and complexity.

 

The New Economics Foundation’s report significantly extends this work, defining how factors such as leverage, diversity, network structure, and connectivity influence resilience, drawing particularly upon recent past experience in the UK. This naturally leads to questions of how best to design such systems to optimise their resilience.

 

Even if they forego reading the whole report, policymakers and regulators should pay close attention to the excellent conclusion and recommendations, which convey the essential messages in a very lucid way.

 

Download report here.

 

Download summary here.