Risk quanta: an approach to understanding modern financial risk

Purpose – This paper aims to present a recent history of developments and innovations that, along with advances in information technology, have caused fundamental changes in the way that financial risk is created, transformed, transported and extinguished in modern financial intermediation systems. A review and critique of the global supervisory response to these developments is presented. Design/methodology/approach – A bottom-up approach to the capture, recording, disaggregation, re-composition and measurement of new, standardized, basic elements of risk that the authors refer to as risk quanta is proposed. Findings – This approach provides a clearer understanding of the financial world that the people live in today and creates a robust information platform to build innovations, advancements and economic growth in the future. Practical implications – This approach provides decision-makers with a clearer understanding of the financial world that the people live in today and creates a robust information platform to build innovations, advancements and economic growth in the future. Social implications – This approach provides financial market participants and the public with a clearer understanding of the financial system and creates a robust information platform to build innovations, advancements and economic growth in the future. Originality/value – This approach is more comprehensive unlike current international proposals for a global financial risk framework.