Financial Innovation and Risk in Financial Institutions

Participating Faculties: Richard Ivey School of Business (host), Social Science, Science

Project Leader: Stephen Sapp, Jim MacGee, Matt Davison, Chris Nicholls

Total Project Funding:  $310,000

Funding Period: Three years

Given the events of the past several years, the importance of improving our understanding of financial markets can hardly be questioned. The motivation for the creation of the interdisciplinary Centre for Financial Innovation and Risk Management in Financial Institutions (the “Centre”) is based in the fact that the blame for the Global Financial Crisis has frequently been placed on an insufficient understanding of the consequences of the rapid advances in financial innovation and their impact on overall risk for the financial services industry and, subsequently, the global economy. The complex mathematics behind the new products developed to provide better returns to investors within the regulatory constraints led to products that were not well understood by economics and financial professionals. The goal of this Interdisciplinary Initiative is to build on the demonstrated strengths at the University of Western Ontario in the areas most relevant to the understanding of financial innovation and risk – the Departments of Applied Mathematics and Statistical & Actuarial Sciences, the Department of Economics, the Faculty of Law, and the Ivey Business School.

As a first step towards improving our understanding in these areas, the four participating units are currently working together on teaching initiatives such as the new Master of Financial Economics (MFE) program which will have its first intake in the Fall of 2013. The interdisciplinary Centre proposed here is designed to further strengthen the integration between these units in the area of research. Academics, practitioners and regulators need to better understand the impact of financial innovation and risk on firms, and the research from the Centre will be of importance to all three key stakeholder groups at both domestic and international levels. Having such a Centre based at a Canadian university will allow the Centre to benefit from Canada’s reputation for how its financial institutions navigated the financial crisis and provide a Centre of Excellence at Western for work in the areas of Financial Innovation and Risk Management at Financial Institutions.