Defining The Grand Challenge

In our view, three critical areas (Market Design, Systemic Risk and Financial Access) cover the most urgent issues in the realm of finance and financial markets faced by both advanced and emerging economies. We see the analysis of these three areas of finance as representing a concerted attack on the fundamental problems of economic systems in the post-crisis world. The approach and role of CAFIN is to tackle these problems as a unified “Grand Challenge” for the modern global economy.

Systemic Risk

This is the most prominent issue to surface from the global financial crisis.

Topics of interest to CAFIN members include conceptual and empirical modeling of systemic risk, techniques of risk management, early warning systems, special characteristics of the banking sector, appropriate regulatory responses, the “too big to fail” problem, and differences across systemic scales (national, regional and global).

Market Design

The level of financial innovation that occurred during the last several years outstripped the ability of market institutions to create efficient trading platforms for these products. This fact is one of the contributing factors to the global financial crisis of 2008-09. Even in the case of traditional financial assets, technological change has put stresses on existing market institutions.

Topics of interest to CAFIN researchers in the area of market design include high frequency trading, circuit breakers, dark pools, disclosure rules, margin and collateral requirements, and pricing rules.

Financial Access

A contributor to the housing bubble was an attempt to provide broader access to mortgage loans than had been hitherto achieved, even in advanced economies. While its relevance to the global financial crisis should not be understated, financial access also cuts across a much deeper set of issues, getting to the heart of how capitalism works.

Topics of interest to CAFIN members in the area of financial access include small business finance, crowd funding, internet-based IPOs that bypass investment banks, mobile banking, and microfinance. Many of these issues involve the use of technology for more efficient financial intermediation, and intersect with issues of market design, while being informed by regulatory perspectives of systemic risk.