Fund Management and Systemic Risk - Lessons from the Global Financial Crisis

CITYPERC Working Paper Series No. 2013/06

30 Pages Posted: 19 Feb 2013

See all articles by Elias Bengtsson

Elias Bengtsson

Halmstad University; University of Gothenburg - School of Business, Economics and Law

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2013

Abstract

Fund managers play an important role in increasing efficiency and stability in financial markets. But research also indicates that fund management in certain circumstances may contribute to the buildup of systemic risk and severity of financial crises. The global financial crisis provided a number of new experiences on the contribution of fund managers to systemic risk. In this article, we focus on these lessons from the crisis. We distinguish between three sources of systemic risk in the financial system that may arise from fund management: insufficient credit risk transfer to fund managers; runs on funds that cause sudden reductions in funding to banks and other financial entities; and contagion through business ties between fund managers and their sponsors. Our discussion relates to the current intense debate on the role the so-called shadow banking system played in the global financial crisis. Several regulatory initiatives have been launched or suggested to reduce the systemic risk arising from non-bank financial entities, and we briefly discuss the likely impact of these on the sources of systemic risk outlined in the article.

Keywords: Systemic risk, shadow banking, fund management, credit risk transfer, liquidity risk, financial crisis, CITYPERC

JEL Classification: G12, G23, G28, G01

Suggested Citation

Bengtsson, Elias, Fund Management and Systemic Risk - Lessons from the Global Financial Crisis (February 1, 2013). CITYPERC Working Paper Series No. 2013/06, Available at SSRN: https://ssrn.com/abstract=2220168 or http://dx.doi.org/10.2139/ssrn.2220168

Elias Bengtsson (Contact Author)

Halmstad University ( email )

301 18 Halmstad
Sweden

University of Gothenburg - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

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