The recent financial crisis has made it paramount for the financial services industry to find new perspectives to look at their industry and, most importantly, to gain a better understanding of how the global financial system can be made less vulnerable and more resilient. The primary objective of this book is to illustrate how the safety science of Resilience Engineering can help to gain a better understanding of what the financial services system is and how to improve governance and control of financial services systems by leveraging some of its key concepts. Resilience is the intrinsic ability of a system to adjust its functioning prior to, during, or following changes and disturbances, so that it can sustain required operations under both expected and unexpected conditions. This definition is focused on the ability to function, rather than just to be impervious to failure, and thereby bridges the traditional conflict between productivity and safety. The core concept of the book is that the behaviour of the financial services system is the result of the tight couplings among the humans, organizations and technologies that are necessary to provide complex financial functions such as the transfer of economic resources. It is a consequence of this perspective that the risks associated with these systems cannot be understood without considering the nature of these tight couplings. Adopting this perspective, the book is designed to provide some answers to the following key questions about the financial crisis: - What actually happened? - Why and how did it happen? - Could something similar happen again? How can we see that in time and how can we control it? - How can sustainable recovery of the global financial system be established? How can its resilience be improved?
Contents: Prologue; The turmoil in the financial services system, Gunilla SundstrÃ¶m and Erik Hollnagel; Section I Understanding Why: the Need for New Perspectives: Gunilla SundstrÃ¶m and Erik Hollnagel; What is the financial services system?, Gunilla SundstrÃ¶m and Erik Hollnagel; A dynamic systems modelling perspective, Gunilla SundstrÃ¶m and Erik Hollnagel; From the efficient market hypothesis to econophysics, Bill McKelvey and Rossitsa Yalamova. Section II Understanding What: Making Sense of Unpredictable Events and Developments: Erik Hollnagel and Gunilla SundstrÃ¶m; The 2007 liquidity crisis: an example of scalability dynamics in action, Bill McKelvey and Rossitsa Yalamova; Taming manias: on the origins, inevitability, prediction and regulation of bubbles and crashes, Jeff Satinover and Didier Sornette; Using power laws and the Hurst exponent to identify stock market trading bubbles, Rossitsa Yalamova and Bill McKelvey. Section III Understanding How: Turning Financial Services Systems into Resilient Systems: Erik Hollnagel and Gunilla SundstrÃ¶m; Balancing different modes of uncertainty management in the financial services industry, Gudela Grote; Financial resilience engineering: toward automatic action formulas against risk and reckless endangerment, Bill McKelvey and Rossitsa Yalamova; The ability to regulate, govern and control financial systems, Gunilla SundstrÃ¶m and Erik Hollnagel; Epilogue: financial markets and the law of requisite variety, Erik Hollnagel and Gunilla SundstrÃ¶m; References; Indexes.