Modelling Risk in Financial Services Systems: A Functional Risk Modelling Perspective

Gunilla A. Sundström (1) , Erik Hollnagel (2)

1 Advanta Bank Corp.
2 CRC - Centre de recherche sur les Risques et les Crises

Financial market events in 2007 and 2008 pose a fundamental challenge for traditional Financial Services industry risk assessment approaches such as Value at Risk (VaR) models and capital adequacy risk measures. Unexampled events such as the liquidity crunch of the global credit markets, and its impact on individual Financial Services firms, clearly demonstrated the need to complement VaR risk models and traditional risk metrics with other types of risk models and metrics. The goal of the present paper is to introduce such a different type of risk modelling framework, i.e., functional risk modelling. Key concepts from resilience engineering are introduced and leveraged to define the approach. The primary goal of the proposed modelling framework is to identify functional dependencies between a firm's business functions and the functions that drive key behaviours of the global financial markets. An example from 2007's financial markets is used to illustrate the proposed framework, i.e., the rapid demise of the UK based residential mortgage firm Northern Rock.

Mots clés: Risk; Financial Services Systems; Modelling; Resilience

Domaines: Sciences de l'Homme et Société; Gestion des risques et des crises

Gunilla A. Sundström, Erik Hollnagel. Modelling Risk in Financial Services Systems: A Functional Risk Modelling Perspective. Third resilience engineering symposium, Oct 2008, Antibes – Juan-les-Pins, France. 9 p. ⟨hal-00508966⟩