A Seismic Model of Systemic Operational Risk

Patrick McConnell

This chapter will introduce a new way of thinking about systemic risk – not the prevailing domino model that relies on interconnectedness, but instead on proximity to risk fault lines, called here the “seismic model”. In a speech on the “Future of Financial Reform” in 2014,¹¹   For the text of Carney’s speech, see http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech775.pdf. Mark Carney, Governor of the Bank of England and Chair of the FSB, said that it was “more than seven years since the first tremors of the earthquake that was to rock the financial system in 2008”. Carney was, of course, using the term “earthquake” as a metaphor familiar to his audience, but expanded the metaphor when referring to “fault lines”, somewhat optimistically claiming that “by fixing the fault lines that caused the last crisis we have created strong foundations for a truly global financial system that can benefit us all”. It remains to be seen whether the job of fixing the fault lines has indeed been completed, but that is not the issue to be covered in this chapter. The question posed here is whether the use of the earthquake metaphor can be extended to provide deeper insights as