Abstract
ABSTRACTThis article explores how systemic risk has been governed at the international level after the financial crisis. While macroprudential ideas have been widely embraced, the policy instruments used to implement them have typically revolved more narrowly around the monitoring of risk posed by discrete ‘systemically important’ entities. This operational focus on individual entities sidelines the more radical implications of macroprudential theory regarding fallacies of composition, fundamental uncertainty and the public control of finance. We explain this tension using a performative understanding of risk as a socio-technical construction, and illustrate its underlying dynamics through case studies of systemic risk governance at the Financial Stability Board (FSB) and the International Monetary Fund (IMF or Fund). Drawing on official reports, consultation documents and archival sources, we argue that the FSB’s and IMF’s translations of systemic risk into a measurable and attributable object have undermined the transformative potential of the macroprudential agenda. The two cases illustrate how practices of quantification can make systemic risk seemingly more governable but ultimately more elusive.
Highlights
The global financial crisis has reignited debates about the contemporary political and economic order
While prevailing macroprudential discourses have been characterised by intellectual openness and political ambition, we show that the operational implementation in the Financial Stability Board (FSB) and the IMF has unfolded in much narrower terms
We have argued that the FSB and the IMF have translated their commitment to the macroprudential agenda into metrics that validate microprudential understandings of systemic risk
Summary
The global financial crisis has reignited debates about the contemporary political and economic order. The two conceptual evolutions discussed above – the re-definition of macroprudential regulation as systemic risk management and of systemic risk as a property of individual SIFIs – underpin a surveillance regime based on aggregated metrics relating to their ‘size’, ‘interconnectedness’ and ‘complexity’ (BCBS 2013) This definition of ‘systemic risk’ renders the monitoring of idiosyncratic risks emerging from specific financial instruments or relationships within firms obsolete. The FSB’s SIFI framework holds systemic risk together as a property that can be isolated within financial entities of a certain size, using measurements of the aggregate properties of those entities This framework is a prime example of how the infrastructural, practical demands of performing systemic risk as a governable object have served to tame this potentially transformative idea. The upper-left hand cell in Figure 1 represents our starting point in 2010, with data from 2008 and the original methodology: IMF staff calculated the size (weighted by a factor of 0.7) and interconnectedness of financial sectors within the global banking network (0.3); ranked sectors according to their composite scores; and selected the two most significant clusters (out of three) comprising the final
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