Inefficiencies of financial institutions, laws, and regulation are at the heart of systemic risk. The most critical areas of financial intermediation are the regulated banking system (due to its massive leverage), the so-called shadow banking system (due to its lack of transparency and dependence on collateral values), institutional asset management (due to its massive size and rapid secular growth) and emerging markets, particularly China (due to evident inefficiencies and political context).
The amounts at stake in global financial intermediation are huge. The total debt of households, corporates, and governments reached almost 290% of global GDP in 2014 and has remained on a path of expansion even after the great financial crisis (view post here). The total amount of credit, outstanding bonds, and stock market capitalization is much higher. The global total of outstanding over-the-counter (OTC) and exchange-traded derivatives has soared to USD700 trillion or almost 1000% of world GDP.