Andrew Haldane, Executive Director of Financial Stability at the Bank of England gave a speech earlier this year which focused on the idea of the global financial system as a complex adaptive system.
In his speech, Haldane focuses on applying the lessons from other network disciplines – such as ecology, epidemiology, biology and engineering – to the financial sphere. Using the complexity lens, he provides an account of the structural vulnerabilities that built-up in the financial system over the past decade. He concludes by suggesting ways of improving the robustness of the financial system in the period ahead.
As Yasmin Merali of Warwick University notes:
The global financial system as a CAS illustrates the importance of network topology and diversity in system robustness and resilience. The density and complexity of the financial network led to profound structural vulnerabilities and amplified uncertainties in the pricing of assets, causing seizures in certain financial markets. Network feedback effects under stress (hoarding of liabilities and fire-sales of assets) coupled with the dominant positions of big players and the erosion of diversity in institutions’ business and risk management strategies resulted in the current crisis.”