Systemic Risk Entanglements

by Patricia Hewitt 0

One of the terms most frequently connected tothe recent economic crisis was “systemic risk.” In that context,systemic risk referred to a far-reaching impact to the financialservices industry. One of the drivers behind the Dodd-Frank billwas to create a regulatory framework that would mitigate this kindof risk. In some ways, this is like trying to put the genie back inthe bottle. And the continued congressional battles centered on theDodd-Frank bill show just how contentious these issues are and howdifficult it is to design guidelines that mitigate both risk andconsequences. And that’s only in the United States.

Systemic risk however, is present in the market in a number ofother ways as well that are even more difficult to pin down.Recently, the breaches experienced by Epsilon and Sony exemplifythe systemic risk present in even the most seemingly innocentactivities like marketing and gaming. Each time someone opts in toa marketing scheme, accepts a discount offer, creates an onlineidentity for any purpose or registers on a Web site, some databasesomewhere is updated. What the market found out with the Epsilonbreach was that this one company held the data for many diversemarketing and loyalty programs. Industry estimates claim that over70 million global Sony Playstation online users may have beenaffected by its recent breach – again, one company holds thisdata.

The user impact of these events will probably range from nothingto PC viruses or even identity theft, but consider the potentiallyshort step to a truly malicious, organized attempt to disrupt theonline identities, accounts, and users of the increasingly hugenumbers of individuals, households, and corporations that rely onthe Internet for a whole host of services. This threat putssystemic risk on an entirely new scale. The point is that it isbecoming increasingly difficult and perhaps it is alreadyimplausible that our financial and non-financial identities can beseparated and protected within silos. Our entanglements lie justbelow the surface of our everyday activities, waiting to trip usup.