Post-crisis reforms of the financial supervisory system have focused on improving the resilience of individual firms and promoting containment of problems in the event that an individual firm does fail. Both resilience and containment are hallmarks of "high reliability organizations" (HROs), a class of organizations distinguished by their ability to maintain reliable performance in dynamic operating conditions.' In the organizational context, resilience is about making organizations more robust to unexpected problems and stresses, and able to maintain performance across a wide range of unanticipated stressed outcomes. Containment is about isolating organizational failures so that when they occur, they do not compromise system-wide performance. In the financial institutions context, these principles aim to insulate financial firms and the financial system from the unexpected. As unexpected negative outcomes occur-for instance, interest rates spike when a highly interconnected bank acquires a large long position in long-term fixed income assets-resilience and containment work together to minimize disruptions in the financial system. They are reactive principles; rather than preventing stresses in the first place, they preserve a system's ability to function as designed in an uncertain, and potentially turbulent, future.
Weber, Robert F.
"Post-Crisis Reform of the Supervisory System and High Reliability Theory,"
Georgia Law Review: Vol. 50:
1, Article 11.
Available at: https://digitalcommons.law.uga.edu/glr/vol50/iss1/11