Part II Governance Structures and Regulation, 10 Financial Market Infrastructures: The Essential Role of Risk Management

Subject(s):

Regulation of banks — Credit risk — Investment business

This chapter focuses on risk management. Innovation and the 2008 financial crisis forced policymakers to re-evaluate the existing approaches to the regulation of financial markets. How to effectively manage risk in the financial system became central in the political agenda, both domestically and internationally. Indeed, the necessity of building resilient and efficient financial markets drove regulators to articulate policy recommendations that incorporate the use of financial market infrastructures (FMIs) as ‘risk managers’ and that set risk management standards for the governance of financial firms. A perfect example of the regulatory interest in risk management was the reform of the over-the-counter (OTC) derivatives markets. Ultimately, reforms affected three segments of risk management: systemic risk management, organizational risk management, and transactional risk management.