The methodology will therefore begin by comparing the interdependence of different markets over time. This will reveal whether or not sectors and global markets have become increasingly correlated over time. It is hypothesized that they have, which in turn has contributed to an increase in systemic risk as such interdependence reduces the value of diversification. The second component of the paper will examine what is being done with respect to reducing systemic risk. This component will include an overview of the traditional theory and a review of the current literature on systemic risk. The crisis has spurred new work on systemic risk, including work specific to financial institutions. Huang, Zhou and Zhu (2009) have developed a framework, for example, to analyze systemic risk at financial institutions. Such methods may provide insight for regulators, boards of directors and regulators that will allow them...

The crisis, give or take a real estate bubble, began in the banking system so it important to understand the dynamics of systemic risk in financial institutions, but it is also important to understand how trouble in one industry can spread so quickly around the world, affecting seemingly unrelated businesses and nations. Ultimately, this paper will serve to provide better understanding of those linkages.