By continuing to test and "future-proof" individual banks without considering the resilience of the financial system as a whole, we run the risk of repeating the same mistakes that led to the recent financial crisis. That is the message from "Beyond the Financial Crisis", a study led by Dr Angela Wilkinson from the Institute for Science, Innovation and Society (part of the 21st Century School).
The report, which reassesses the causes and nature of the financial crisis, concludes that this was not a one-off event, but instead heralds the prospect of other systemic failures in the financial markets. According to Dr Wilkinson, "A lack of systemic and reflective strategic foresight, combined with overconfidence in quantitative analysis, made the financial system 'blind'. Most of the actors in the system chose not to see what was going on or to question it."
The report offers two alternative possibilities of how the world might move past the credit crunch and forward into the future. These two scenarios – Growth and Health – aim to encourage the world to remain open to a change of mind about the nature of the problems it faces and the range of decisions and actions that are available.
The first path Growth is characterised by familiar financial assumptions and tools but with a greater degree of oversight and transparency, accompanied by a shift in regulatory structures and culture. The second path Health is based on a profound shift of emphasis from financial opportunities to the health of the financial system as a whole and its interdependency with other systems.
Taken together, the two scenarios aim to provide a starting point for relevant groups who want to develop a greater understanding of systemic risk in order to address the uncertainties of tomorrow’s financial world. The scenarios have already been used, for the opening keynote address and engagement session of the World Economic Symposium, in Germany in 2009, and in 2009 at a Financial Innovation Laboratory which included the Institute of Chartered Accountants for England and Wales.