About the image – The ‘Shadow Banking System’ as surfaced by Pozsar et al. (Shadow Banking, Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky, Federal Reserve Bank of New York Staff Reports, no. 458).
Each August, since 1978, influential members of the banking and financial services industries have come together in Jackson Hole, at the invitation of the Federal Reserve Bank of Kansas City.
In 2007, the backdrop to this illustrious meeting was one of chaos and uncertainty.
Earlier that summer the first signs of what was later dubbed the ‘Financial Crisis’ were felt, and while initially rationalized to be a momentary ‘blip’, were rapidly becoming understood to be a far greater massive collapse of asset prices and a freezing of liquidity.
As the esteemed Jackson Hole participants scrabbled to understand what was happening, a California-based asset manager provided some electrifying language that ultimately help peel back the chaos, uncertainty, and ambiguity:
“The real issue going on right now is a run on [the] shadow banking system.”
This ‘shadow banking system’ was highly leveraged, highly opaque, and highly connected with the more traditional banking system that operated transparently and ‘in the light’ – and as it’s name implies, details were sketchy at best. Following the ‘naming’ of the issue, and the Jackson Hole meeting, a team from the New York Federal Reserve was tasked with uncovering it’s structure; I know the name of my foe, but what of it’s image? Turns out the Shadow Banking System results in a map so large and complex that it when printed as a legible poster it is several feet wide (the image heads this post, is again below, and is taken from the full report which can be found here).
“Looking at the map created a cognitive shift a little similar to the one that had occurred back in the sixteenth century, when the mathematician Nicolaus Copernicus showed in his diagrams that the earth revolved around the sun, not the other way around.”
One of our offerings at interstitio is in the science of Organizational and Social Network Analysis – which is a fancy way of saying we can help you create maps like this (graphical and mathematical representations of your organization), and (more importantly) actionable insight and intervention. Typically, such maps are constructed through the surfacing and analysis of communication networks (e.g. email, phone, IM, SMS etc.), but they could also come from exploring the perceived connection of concepts, or from any other measurable interactions between objects/agents.
Our plea to you? Don’t be like the folks at the Federal Reserve – don’t do this reactively – work with us, let us help you surface a representation of your concern proactively so that you can better understand, plan, and act now. As the Fed subsequently said “If we had understood the shadow banking sector better before 2007, the bubble might never have become so bad.”
If you’re interested in any of our services, don’t hesitate to drop us a note.
Editors Note – The Global Challenge is currently being judged in Oxford. Don’t believe ‘maps’ are an increasingly important tool as we build sustainable strategies that manage complexity? Have a look at the hashtag #maptheproblem on twitter …
— The Global Challenge (@maptheproblem) May 1, 2017