Shocks to only part of the financial system, such as the collapse of the subprime mortgage market in 2007, can spread and intensify through the complex interconnections among financial and non-financial institutions to become systemic threats. The consequences can be catastrophic, prompting economists and regulators to study and find ways to curtail such threats by using network theory. Legal scholars, however, have so far largely overlooked that approach, as have policymakers. Most financial regulation remains atomistic, in that it fails to account for the fact that each individual is part of, and plays a role in, a wider network.
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