Cutting Edge introduction: Sifis and wrong-way risk

Wrong-way risk is a bad enough headache at the best of times. But what if your counterparty is systemically important, so its default affects all your other exposures? Laurie Carver introduces this month’s technical articles

Much has been written about how to solve the problem of companies that are too big to fail, but with the detail of recovery and resolution plans still foggy, the policy focus to date has been on trying to make failure less likely: tougher capital requirements, maximum leverage ratios, and ring-fencing investment banks away from retail, for example. Perhaps the most striking action so far, though