Systemic risk: the Dod-Frank Act and Puerto Rico
| Autor | Simón E. Carlo-Valentín |
| Cargo | J.D. (2015), Cum Laude, University of Puerto Rico, Rio Piedras Campus, M.B.A. (2015), University of Puerto Rico, Rio Piedras Campus, B.S.B.A. Finance & Accounting (2011), Cum Laude, University of Puerto Rico, Mayagüez Campus |
| Páginas | 195-206 |
SYSTEMIC RISK: THE DODD-FRANK ACT AND PUERTO RICO
SIMÓN E. CARLO-VALENTÍN*
I. Introduction ....................................................................................................................... 194
II. What is Systemic Risk .................................................................................................... 194
III. Sources of Systemic Risk ................................................................................................ 195
IV. Regulatory Attempts ....................................................................................................... 197
V. The Recent Financial Crisis and Puerto Rico ........................................................... 200
VI. Dodd-Frank Act & Systemic Risk ............................................................................... 202
VII. Conclusion ......................................................................................................................... 203
VIII. Update................................................................................................................................ 205
I. INTRODUCTION
This paper will evaluate what constitutes systemic risk, the sources of
systemic risk, regulatory efforts outside of the Dodd-Frank Act, how the 2008
crisis affected Puerto Rico and set the current economic landscape, then the
efforts put forward by the enactment of the Dodd Frank Act and the conclusions
that constitute my opinion regarding the efforts put forward by the Federal
Reserve and Congress and the effects they may have on the financial markets in
general and the particular case of Puerto Rico.
II. WHAT IS SYSTEMIC RISK
Systemic risk, in broad general terms, is the inherent risk to the entire
market or a market segment triggered by an event, “such as an economic shock or
institutional failure, causes a chain of bad economic consequences.”
1
The
consequences can be the failure of particular institutions or the whole market;
these failures deprive society of capital and increases costs and can cause severe
panics. The most common bank panic is the so called bank run, in which
consumers, triggered by a certain event or even rumors or a possible collapse, go
in mass to withdraw their deposits. Often the banks don’t have enough to fulfill
* The author is waiting for his official C.P.A. license number and recently completed his law
studies. J.D. (2015), Cu m Laude, University of Puerto Rico – Rio Piedras Campus, M.B.A. (2015),
University of Puerto Rico – Rio Piedras Campus, B.S.B.A. Finance & Accounting (2011), Cum
Laude, University of Puerto Rico – Mayagüez Campus.
1
Steven L. Schwarcz, Systemic Risk, 97 GEO. L.J. 193 (2008).
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