The ‘Get Out of Jail Card’: The Immunity Risk Provides Financial Markets and Regulators from the Consequences of Their Mistakes

  • Bartholomew Paudyn


Despite its history of triggering major mistakes, so much dubious financial risk management remains taken for granted and promoted by markets and regulators. As evermore sophisticated financial processes of operationalising and commodifying an indeterminate future subscribe to a false dichotomy between (quantitative) risk and (qualitative) uncertainty, this chapter problematises how this approach aggravates the asymmetric relationship between private, techno-scientific epistocracy and public democracy. Conventional risk management is analysed through the categories of market/systematic, operational/business and credit risk to reveal their distortions and mistakes. Notwithstanding its repetitious failures, the performativity of risk management/discourse creates and legitimises the conditions and subjectivities that validate its continued utility and normative authority. Immunising market entities from serious public contestation and reform, this depoliticises the constitution of authoritative knowledge.


  1. Aitken, Rob. 2007. Performing Capital: Toward a Cultural Economy of Popular and Global Finance. New York: Palgrave.CrossRefGoogle Scholar
  2. Analytics, Moody’s. 2010. EDF Measures for Sovereigns. New York: Moody’s Analytics.Google Scholar
  3. Basel Committee on Banking Supervision. 2011a. Principles for the Sound Management of Operational Risk. Basel: BIS.Google Scholar
  4. ———. 2011b. Operational Risk – Supervisory Guidelines for the Advanced Measurement Approaches. Basel: BIS.Google Scholar
  5. ———. 2014. Reducing Excessive Variability in Banks’ Regulatory Capital Ratios, A Report to the G20’. Basel: BIS.Google Scholar
  6. Baumgartner, Frank. 2013. Ideas and Policy Change. Governance 26 (2): 239–258.CrossRefGoogle Scholar
  7. Best, Jacqueline. 2008. Ambiguity, Uncertainty and Risk: Rethinking Indeterminacy’. International Political Sociology 2 (4): 355–374.CrossRefGoogle Scholar
  8. ———. 2010. The Limits of Financial Risk Management: Or, What We Didn’t Learn from the Asian Crisis. New Political Economy 15 (1): 29–49.CrossRefGoogle Scholar
  9. ———. 2016. When Crises Are Failures: Contested Metrics in International Finance and Development. International Political Sociology 10 (1): 39–55.CrossRefGoogle Scholar
  10. Blyth, Mark. 2013. Paradigms and Paradox: The Politics of Economic Ideas in Two Moments of Crisis. Governance 26 (2): 197–215.CrossRefGoogle Scholar
  11. Butler, Judith. 2010. Performative Agency. Journal of Cultural Economy 3 (2): 147–161.CrossRefGoogle Scholar
  12. Callon, Michel, ed. 1998. The Laws of the Markets. Oxford: Blackwell.Google Scholar
  13. Callon, Michel, and John Law. 2003. On Qualculation, Agency and Otherness. Environment and Planning D: Society and Space 23 (5): 717–731.CrossRefGoogle Scholar
  14. Carruthers, Bruce. 2013. From Uncertainty toward Risk: The Case of Credit Ratings. Socio-Economic Review 11 (3): 525–551.CrossRefGoogle Scholar
  15. Cochoy, Franck. 2008. Calculation, Qualculation, Calqulation. Marketing Theory 8 (1): 15–44.CrossRefGoogle Scholar
  16. Committee of Sponsoring Organizations of the Treadway Commission. 2004. Enterprise Risk Management – Integrated Framework. New York: COSO.Google Scholar
  17. European Banking Federation. 2016. EBF Final Response to the BCBS Consultative Document on the Standardised Measurement Approach for Operational Risk. Brussels: EBF.Google Scholar
  18. Fitch Ratings. 2012/2014. Sovereign Rating Criteria. New York: Fitch.Google Scholar
  19. Foucault, Michel. 1980. Two Lectures. In Power/Knowledge: Selected Interviews and Other Writings, ed. Colin Gordon, 78–108. New York: Pantheon.Google Scholar
  20. Gaillard, Norbert. 2014. What is the Value of Sovereign Ratings? German Economic Review 15 (1): 208–224.CrossRefGoogle Scholar
  21. Gamble, Andrew. 2009. The Spectre at the Feast. Basingstoke: Palgrave.CrossRefGoogle Scholar
  22. Gapen, Michael T., Dale F. Gray, Cheng Hoon Lim, and Yingbin Xiao. 2005. Measuring and Analyzing Sovereign Risk with Contingent Claims’. IMF Working Paper 05/155. Washington: IMF.Google Scholar
  23. deGoede, Marieke. 2004. Repoliticizing Financial Risk. Economy and Society 33 (2): 197–217.CrossRefGoogle Scholar
  24. ———. 2005. Virtue, Fortune, and Faith: A Genealogy of Finance. Minneapolis: University of Minnesota Press.Google Scholar
  25. Haldane, Andrew, Glen Hoggarth, and Victoria Saporta. 2000. Assessing Financial System Stability, Efficiency and Structure at the Bank of England, 1. BIS Papers: Basel.Google Scholar
  26. Hall, Peter. 1993. Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in Britain. Comparative Politics 25 (3): 275–296.CrossRefGoogle Scholar
  27. Hay, Colin. 2004. The Normalizing Role of Rationalist Assumptions in the Institutional Embedding of Neoliberalism. Economy and Society 33 (4): 500–527.CrossRefGoogle Scholar
  28. Helleiner, Eric. 2014. The Status Quo Crisis: Global Financial Governance after the 2008 Meltdown. Ithaca: Cornell University Press.CrossRefGoogle Scholar
  29. International Monetary Fund. 2010. Global Financial Stability Report: Sovereigns, Funding, and Systemic Liquidity. Washington: IMF.Google Scholar
  30. Jorion, Philippe. 1997. Value at Risk. New York: McGraw-Hill.Google Scholar
  31. Keynes, John M. 1921/1979. Treatise on Probability. London: Macmillan, AMS Press.Google Scholar
  32. Knight, Frank. 1921/1964. Risk, Uncertainty and Profit. New York: A.M. Kelley.Google Scholar
  33. Knorr Cetina, Karin. 1999. Epistemic Cultures: How the Sciences Make Knowledge. Cambridge, MA: Harvard University Press.Google Scholar
  34. Knorr Cetina, Karin, and Alex Preda, eds. 2005. The Sociology of Financial Markets. Oxford: Oxford University Press.Google Scholar
  35. Krippner, Greta. 2011. Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge, MA: Harvard University Press.Google Scholar
  36. Langley, Paul. 2008. The Everyday Life of Global Finance: Saving and Borrowing in Anglo-America. Oxford: Oxford University Press.CrossRefGoogle Scholar
  37. Lépinay, Vincent-Antonin. 2011. Codes of Finance:Engineering Derivatives in a Global Bank. Princeton: Princeton University Press.Google Scholar
  38. MacKenzie, Donald. 2003. Long-Term Capital Management and the Sociology of Arbitrage. Economy and Society 32 (3): 349–380.CrossRefGoogle Scholar
  39. ———. 2005. Opening the Black Boxes of Global Finance. Review of International Political Economy 12 (5): 555–576.CrossRefGoogle Scholar
  40. ———. 2006. An Engine, Not a Camera. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
  41. ———. 2011. The Credit Crisis as a Problem in the Sociology of Knowledge. American Journal of Sociology 116 (6): 1778–1841.CrossRefGoogle Scholar
  42. Moody’s Investors Service. 2008. Rating Migration and Default Rates of Non-U.S. Sub-Sovereign Debt Issuers, 1983–2007. New York: MIS.Google Scholar
  43. Morningstar. 2016. Morningstar’s Active/Passive Barometer. Morningstar Manager Research, June.Google Scholar
  44. Moschella, Manuela. 2012. Governing Risk: The IMF and Global Financial Crises. London: Palgrave.Google Scholar
  45. Münnich, Sascha. 2015. Readjusting Imagined Markets: Morality and Institutional Resilience in the German and British Bank Bailout of 2008. Socio-Economic Review 14 (2): 283–307.CrossRefGoogle Scholar
  46. O’Malley, Pat. 1996. Risk and Responsibility. In Foucault and Political Reason: Liberalism, Neo-liberalism and Rationalities of Government, ed. Andrew Barry, Thomas Osborne, and Nikolas Rose, 189–207. Chicago: University of Chicago Press.Google Scholar
  47. ———. 2004. Risk, Uncertainty and Government. London: The Glasshouse Press.Google Scholar
  48. OECD. 2017. OECD Sovereign Borrowing Outlook 2017. Paris: OECD Publishing.CrossRefGoogle Scholar
  49. Paudyn, Bartholomew. 2014. Credit Ratings and Sovereign Debt: The Political Economy of Creditworthiness Through Risk and Uncertainty. Basingstoke: Palgrave.CrossRefGoogle Scholar
  50. ———. 2015. The Struggle to Perform the Political Economy of Creditworthiness. Journal of Cultural Economy 8 (6): 655–672.CrossRefGoogle Scholar
  51. Power, Michael. 2005. The Invention of Operational Risk. Review of International Political Economy 12 (4): 577–599.CrossRefGoogle Scholar
  52. ———. 2007. Organized Uncertainty: Designing a World of Risk Management. New York: Oxford University Press.Google Scholar
  53. Reinhart, Carmen M., and Kenneth Rogoff. 2010. Growth in a Time of Debt. American Economic Review 100 (2): 573–578.CrossRefGoogle Scholar
  54. Rose, Nikolas. 1996. Governing “Advanced” Liberal Democracies. In Foucault and Political Reason, ed. Andrew Barry, Thomas Osborne, and Nikolas Rose, 37–64. Chicago: University of Chicago Press.Google Scholar
  55. Roy, Ravi K., Arthur T. Denzau, and Thomas D. Willett, eds. 2007. Neoliberalism: National and Regional Experiments with Global Ideas. New York: Routledge.Google Scholar
  56. Standard & Poor’s. 2010. Guide to Credit Ratings Criteria. New York: S&P.Google Scholar
  57. ———. 2014. Sovereign Rating Methodology. New York: S&P.Google Scholar
  58. Standard & Poor’s Dow Jones. 2016. SPIVA Europe Scorecard. October 24.Google Scholar
  59. Stiglitz, Joseph, and Daniel Heymann, eds. 2014. Life After Debt: The Origins and Resolutions of Debt Crisis. Basingstoke: Palgrave.Google Scholar
  60. Svetlova, Ekaterina. 2012. On the Performative Power of Financial Models. Economy and Society 41 (3): 418–434.CrossRefGoogle Scholar
  61. Thrift, Nigel. 1996. Shut Up and Dance, or, is the World Economy Knowable? In The Global Economy in Transition, ed. P.W. Daniels and W.F. Lever, 11–23. London: Longman.Google Scholar
  62. Turner Review. 2009. Turner Review: A Regulatory Response to the Global Banking Crisis. London: FSA.Google Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Bartholomew Paudyn
    • 1
  1. 1.London School of Economics and Political ScienceLondonUK

Personalised recommendations