Systemic risk is a term that came crashing into popular discourse with the past financial crisis and since become a key term in our vocabulary for talking about the new context of the 21st century. The world we find ourselves inhabiting in the 21st century is a world of mounting systemic risks, along a multiplicity of dimensions. At the center of this new equation is the linkage between expanding connectivity and systemic risk. With the expansion of telecommunication networks and computerized coordination, our economies and societies have gone from disconnected to connected within the space of just a few short decades. The implications of this transformation are truly profound as it rewrites fundamental rules within which our systems of social and economic organization operate today.
The term “perfect storm” is often used to describe the somewhat paradoxical situation we find ourselves in today, as systemic risk is mounting our collective capacities to cooperate and coordinate effectively through existing institutional structures to respond to it appears to be diminishing. Risks are intensifying in scale, scope, and frequency but the collective capacity to respond appears significantly lacking. In the coming decade with the ongoing expansion of information networks, we will see the increasing convergence of what in the past looked to be widely divergent domains, not just insurance and capital markets but these will become ever more integrated with security. Whereas in the past such phenomena as natural disasters, human security, cybersecurity, inequality, or political disruption were seen as largely separate and distinct phenomena, as the networks of connectivity and linkages expand across and between domains we move further into this new world of systemic risk every day.
In this paper we give an outline to the nature of systemic risk, trace how it has evolved over the past decades and how to use systems thinking, new economic and financial models, and new technologies to build resilience against systemic failures across the many dimensions along which it exists today.