The Systemic Risk Council
The recent international financial crisis had the character of a systemic crisis. In previous years, significant financial risks had been built up - for example in relation to the real estate market and trading in financial derivatives - which went across the global financial system. When some financial institutions got into trouble as a result of excessive risk-taking, it had serious consequences for the entire financial system and the real economy. The financial risks had become systemic, i.e. they had reached a degree where they could put all or significant parts of the financial system and economic development under stress.
A broad majority in the Danish Parliament decided in 2012 that a Systemic Risk Council was to be established. In February 2013, the Minister for Business and Growth established the Systemic Risk Council, The Council. The Council is established through an amendment to the Financial Business Act.
The Systemic Risk Council is tasked to address systemic risks in the financial area, including areas which today may be subject to only limited or no regulation. The Systemic Risk Council will be identifying and monitoring systemic financial risks in order to identify such risks at an early stage. Thereby, initiatives may be taken to counter such risks and thus avoid that they reach a level where they may have significant adverse effects on the financial system and the real economy. In its monitoring of systemic financial risks, the Council must e.g. look at how systemic financial risks build up over time and across sectors. Examples of systemic risk can be found here.
The Council's work concerning systemic risks is made up of three parts. The Council monitors the financial system, makes recommendations on policy measures and evaluates policy measures. A risk is considered systemic to the financial system, if its materialisation can impact significant parts of or the entire system. This increases the risk of financial crisis.