Client Alert
| August 26, 2008
The Business of Systemic Risk: The Report of the Counterparty Risk Management Policy Group III
On August 6, 2008 the Counterparty Risk Management Policy Group III (the "Group") published its report entitled "Containing Systemic Risk: The Road to Reform" (the "Report"). The stated intention of the Report is to recommend "steps that must be taken by the private sector to reduce the frequency and/or severity of future financial shocks while recognizing that such future shocks are inevitable…" The recommended steps are based in part on a particular understanding of the causes of the current financial crisis, which the Report summarizes as follows: excessive liquidity, accompanied by a mispricing of credit risk; increased transaction speed and complexity; a rapid transmission of complexity-induced contagion, probably as a result of the nature of certain investment vehicles and abetted by an increase in risk aversion, a high degree of leverage and inadequate ability to mitigate risk; and patterns of behavior "not always consistent with the basic goal of financial stability."
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This memorandum is intended only as a general discussion of these issues. It is not considered to be legal advice. We would be pleased to provide additional details or advice about specific situations. For additional information on this important topic, please feel free to call upon your Dewey & LeBoeuf relationship partner. No part of this publication may be reproduced, in whole or in part, in any form, without our prior written consent.
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