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  5. Distributing Risk with Digital Assets: Mitigating Global Systemic Risk

Distributing Risk with Digital Assets: Mitigating Global Systemic Risk

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27 October 2015
John Dwyer

Abstract

Since the global financial crisis of 2008, policymakers, regulators, and market participants have increasingly shifted their attention to the notion of systemic risk. While significant research has been put into defining systemic risk and establishing a means for measuring its build-up, little attention has been given to how we harness technology to re-architect the financial system to retain counterparty risk but limit its ability to turn into something systemic.

In this report, Celent will explore how distributed ledger technology may offer a solution to this problem.

Growth in Financial Crises

In the past few decades our global financial system has faced numerous financial disasters that have grown in size, scope, and breadth of financial impact, culminating in the global financial crisis of 2008 that triggered the largest globally coordinated bailout in history, costing trillions of dollars.

Market Uncertainty when Certainty Is Critical

Capital markets hate uncertainty, particularly in distressed periods. The absence of accurate, real-time information on the interconnectedness of financial institutions provides a real problem to regulators as they seek to provide reassurance to the market during a crisis.

Distributed Ledger Technology

Celent explores several areas in this report including systemic risk, central bank prudential regulation, interbank payments, capital markets settlement, and the potential benefits of distributed ledger technology to mitigate systemic risk.

“We remain at the early stages of the evolution of this technology,” says John Dwyer, a senior analyst with Celent’s Securities and Investments practice and author of the report. “However, we deem it important for our clients to have the perspectives provided in this report because we see the potential for some fundamental re-architecture of not only information technology within the financial system but of the global financial system itself.”

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