Following the current banking and debt crises, the notion of a systemic risk has become increasingly prominent in public and political arenas, economic commentaries, social science debates, and other contemporary discussions. If one wants to find concise insights into where the concept of systemic risk is utilized and why, how the concept came to be in some contexts, and a number of its policy implications, I would recommend reading the issue number one on Systemic Risk by the anthropological journal LIMN that was published a few years ago. In addition to its introduction, the issue contains seventeen reflection pieces on systemic risk in various settings including banking but also resilience and homeland security, critical infrastructure protection, insurance, and computing among other things.
As I am reading this now, a few years later, I tend to note an underlying emphasis that probably stems from the topic that was studied but permeates some of the terminology. Starting from systemic risks, many papers end up stressing systems and their properties and structures inherently as the very risk to many other things. Hence we can read several considerations about “pathologies” of systems, of unforeseen effects, of interlinks and interdependencies, of the “very nature” of complex system properties, and of how these elevate risks. The risks, furthermore, are posed as something that economic and other actors are unable to manage, at least any longer. Here are a few quotations from various of the papers in reflection of my argument:
Most importantly, it (the financial crisis of 2008-2009) demonstrated the inability of economic actors to manage systemic risks that stem from structural vulnerabilities in a system. It is, thus, critical to recognize structural vulnerability as a distinct form of economic pathology(.)
(H)igh leverage was enough to constitute certain clusters of banks as intrinsically vulnerable nodes within the system, which meant that the vulnerability of these nodes could be realistically characterized and analyzed without any reference to a specific external event.
Systemic risk is associated with the way the entire financial system is interlinked or interdependent so that a problem in respect to a single financial institution (or small cluster of institutions) can cause a cascading and paralyzing failure across the whole system.
By its very nature, a (complex) system contains the risk of large-scale, catastrophic events that are not bounded or localized, but sweeping.
Certainly such points are critical and deserve more social science and policy attention than before. New openings about complexity theory and old ones about “normal accidents” or large technological systems may give several further cues on studying such vital issues in practice. I believe some social scientists could, however, point out another angle of such elevated worries about systems: descriptions such as these give minimal role to agency, the actions of people that may have helped trigger the crisis and could perhaps mitigate its effects in the aftermath. The first quotation even claims this directly: economic actors showed an “inability” to manage systemic risks.
Whether systems or actors are more central to crises and disasters is difficult to conclude and I am not convinced that is a case of either/or — in some organizational theory discussions, it has been said that both perspectives are important, depending on the scale of the issues that are looked at.
Having said that, a lecture I heard a few days days ago about banking risks and regulation was a refreshing view specifically because, as I saw it, it gave people (and institutions) back agency while explaining the current financial crises. That there were and are intricate and complex interactions in and among financial systems may be accurate. But the talk based on empirical research suggested that such interconnections may have been elevated by specific public regulations in the financial sector, their appropriation by new offices particularly those of the chief risk officer in banks, and increased risk-taking which was influenced by these officers’ professional ethos and their background interest and training in mathematics and finance. If one explains systemic crises by referring to systemic properties — a move that I very much try to follow in my research work — one could then probably at least be aware of other angles: there are alternative explanations that draw from the social sciences’ and sociology’s classical emphases on social actions, their meaningfulness, origins, and their effects in institutions and organizations that can be backed up by empirical findings as well.