Insights and Resources for Systemic Risk in the Financial Services Industry
DTCC established its Systemic Risk Office (SRO), which comprises a dedicated team of risk management professionals within DTCC’s Group Chief Risk Office, specifically to identify, monitor and contain, where practical, potential systemic threats, as an expansion of its broad risk management framework.
Systemic risk in the financial markets environment relevant to DTCC is defined as the risk that the effect of an adverse event or series of events within the broadly defined financial services industry, including the financial industries critical infrastructures, caused by members or inflicted through external channels, is transmitted across the industry, markets, products and/or structures. This transmission, in turn, may lead to severe impairment, disruption, or degradation of the effectiveness and/or efficiency of the intermediation function, which may also impair the unencumbered functioning of critical infrastructures such as DTCC.
The creation of SRO reflects DTCC’s recognition of its critical role in the securities industry and the designation by the Financial Stability Oversight Council (FSOC) of DTC, NSCC and FICC as “Systemically Important Financial Market Utilities” (SIFMUs).
A key component of the SRO’s mandate includes management of DTCC’s Interconnectedness Risk Initiative, which is a multi-year cross functional effort to identify and limit the potential impact of disruptions caused by the failure of an interconnected entity to function as expected. Each identified area of interconnectedness risk was analyzed to understand the nature of the interconnectedness exposure across DTCC.
Building on this initiative, interconnectedness risk served as the topic for DTCC’s White Paper to the Industry entitled, Understanding Interconnectedness Risk To Build a More Resilient Financial System.