Symposium on the Management of Systemic Risk in Finance

June 26, 2014
Kellogg Center, Columbia University, New York City
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Organized by:
Center for the Management of Systemic Risk (CMSR)
Columbia University

Global Systemic Risk
Princeton Institute for International and Regional Studies
Princeton University 

Symposium Leadership

Professor Venkat Venkatasubramanian
Samuel Ruben-Peter G. Viele Professor of Engineering
Co-Director, Center for the Management of Systemic Risk
Columbia University

Professor David Yao
Piyasombatkul Family Professor, Department of Industrial Engineering and Operations Research
Co-Director, Center for the Management of Systemic Risk
Columbia University

The Musgrave Professor of Sociology and International Affairs
Chair -- Department of Sociology, Coordinator -- Global Systemic Risk
Princeton Institute for International and Regional Studies, Princeton University

 Department of Statistics, Columbia University
 School of Continuing Education, Columbia University
Interdisciplinary Center for Innovative Theories and Empirics, Columbia University


The one-day symposium will be held at Kellogg Center, on the top floor of Columbia University’s International Affairs Building, on June 26, 2014.

Recent systemic failures in different domains such as the BP Deepwater Horizon oil spill, Indian power blackout and the subprime market crisis have reminded us, once again, of the fragility of complex systems.

Most catastrophic accidents are systemic failures. Union Carbide’s Bhopal Gas Tragedy (1984) in which some 5000 died and 100,000 were seriously injured was a systemic failure. Another event is the Piper Alpha disaster (1988) where an offshore oil platform operated by Occidental Petroleum in the North Sea, U.K., exploded killing 167 people and resulted in $2 billion in losses. The Challenger (1986) and Columbia (2003) space shuttle disasters, Schering Plough inhaler recall (1999), the Northeast electrical power blackout (2003), the spread of SARS (2003), and the Johnson & Johnson multi-drug recall (2010) are all examples of systemic failures. Examples in finance include, besides the subprime crisis, the Enron (2001) and WorldCom (2002) collapses, and the Madoff Ponzi scheme (2008). The demise of the News of the World newspaper organization (2011) is an example from the media domain.

Although these failures occurred in very different domains, in different facilities, triggered by different events, involved different materials, there are, however, some notable mechanisms that are common to them. Understanding and learning from these mechanisms are essential to avoid such disasters in the future. To accomplish that, one needs to go beyond analyzing them as independent one-off accidents, and examine them in the broader perspective of the potential fragility of all complex systems.

Systemic failures typically occur due to fragility in complex systems. Modern technological advances are creating an increasing number of complex engineered systems, processes, and products, which pose considerable challenges in ensuring their proper design, analysis, control, safety, and management for successful operation over their life cycles. It is their scale, nonlinearities, inter-connectedness, and interactions with humans and the environment that can make these systems-of-systems fragile, when the cumulative effects of multiple abnormalities can propagate in numerous ways to cause systemic failures. In particular, the nonlinear interactions among a large number of inter-dependent components, and the environment, can lead to “emergent” behavior – i.e. the behavior of the whole is more than the sum of its parts, which can be difficult to anticipate and control.

One needs to study all these disasters from a common systems engineering perspective, so that one can thoroughly understand the commonalities as well as the differences, in order to better design and manage such systems in the future. Further, such studies need to be carried out in concert with public policy and regulatory experts so that all the scientific, engineering, and human decision-making lessons get translated into effective policies and regulations.

To begin to address these needs, we are organizing a series of one day symposia at Columbia bringing in world-class experts on systemic failures in four major domains --- Finance, Sustainable Energy and Environment, Smart Infrastructure and Healthcare – to promote discussion and cross-fertilization across domains. We plan to invite experienced leaders from academia, industry, business and regulatory agencies. We also plan to have such diversity among our audience.

The first symposium is focused on finance. After the symposium, we expect to have a position paper that describes a research agenda for this important topic for publication in a leading journal. We also plan to publish an edited volume of select papers from the symposia series.

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