Keywords: finance industry, economics, risk management, USA, United States, banking industry, resiliency, critical infrastructures, proactive measures, reactive measures, financial risk, physical risk
The banking and finance sector: new paradigms of resiliency and risk
The money that flows through the banking and finance sector provides the funding for operations of every other critical infrastructure sector in the USA; without funding, everything stops, and therefore, it is of the utmost importance to safeguard the banking and finance sector against adverse shocks. In order to design and implement resiliency measures, the unique characteristics of the sector must be thoroughly understood and incorporated into new paradigms of resiliency and risk. Risk in the sector is comprised of both physical and financial risk; the prominent financial risk, systematic risk, stems from irrational human behaviour, and thus, adverse shocks must be treated as Black Swan events, or as wholly unpredictable. Therefore, resiliency measures must concentrate on dampening the effects of adverse shocks (proactive resiliency measures) and effectively dealing with such shocks once they occur (reactive resiliency measures), rather than futilely trying to prevent them from occurring at all.