Canaries in the Coal Mine: How the Rise in Settlement “Fails” Creates Systemic Risk for Financial Firms and Investors

By Robert E. Litan on March 17, 2011

In response to the financial crisis of 2007-2009, Robert E. Litan, Director at Global Economics Group, Harold Bradley, Robert Fawls,and Fred Sommers authored Canaries in the Coal Mine: How the Rise in Settlement Fails Creates Systemic Risk for Financial Firms and Investors, (Ewing Marion Kauffman Foundation, March 2011) which addresses critical issues regarding systemic risk in the United States financial industry that must be fixed. In particular the authors address problems regarding mortgage backed securities and exchange traded funds, the sheer size of the outstanding trades agreed to by counterparties that do not settle on time in relation to the liquidity and capitalization of banks and intermediary firms, and the scale of systemic risk posed by poorly performing securities. Canaries in the Coal Mine: How the Rise in Settlement Fails Creates Systemic Risk for Financial Firms and…