Template:M intro design System redundancy: Difference between revisions

The leaner a distributed system is, the more ''fragile'' it will be. Typically there will be several “single points of failure”, malfunction at which will, in the best case, stop the whole system functioning, and in [[tightly-coupled]] [[complex system]]s may trigger further component failures, and chain reactions.

A modern market is undoubtedly a [[complex system]]: it is boundaryless, comprised of interactions of an indeterminate number of autonomous actors, many of whom — notably corporations — are themselves complex systems, comprising an indeterminate number of their own autonomous actors.  

System fragility depends up the tightness of that coupling between components. How much slack is there? Increasingly, none at all.  

When the JC started practice the standard conveyance of urgent written communication was by giving it to a chap on a bicycle. [[Facsimile]] was the innovation: while exponentially quicker than a bike courier, the fax was still manual and bounded by analogue processes at either end such that the product started out and finished embedded in a physical [[substrate]] which you couldn’t easily reply to, forward<ref>Not at least without time, manual intervention and loss of fidelity.</ref> or cut and paste from. The analog universe imposed its own immutable sobriety upon matters: there was a certain, slow pace at which things moved, and that was that. But it contained natural checks and fire breaks. You could charge down to the mail room and call back an ill-advised letter in a way you can’t with email. Just having a letter typed meant it passed through multiple hands, that effluxion was itself a kind of quality control, a self-enforcing circumspection and a kind of natural brake upon intemperate behaviour. There is no such filter now.

In any case ''slow'', loosely coupled chain reactions have a better chance of being contained. The credit squeeze that did for Northern Rock took days to unfold: it required media propagation: account holders had to hear about it, stop whatever they were doing, go to their local branch, for a queue to form, for that to be reported, and so on. In the same time, the liquidity crunch that ruined Silicon Valley Bank had also finished Credit Suisse, an unrelated bank on a different continent that had nothing to do with Silicon Valley Bank at all. The system, the network, is much more tightly coupled now.

So, yes, financial services are tightly coupled. The increasingly complexity of their interconnectedness means that coupling grows ever tighter. The more interconnections, the faster information flows around the system, the more quickly it can swamp whatever systems we erect to contain it.

Instinctively, we know this. We build certain kinds of redundancy into our systems precisely as a failsafe. Financial services regulators require banks to hold [[regulatory capital]] — spare cash, allocated against no particular risk at all, attributed only to [[tier 1 capital]] holders — as a bulwark against credit and liquidity crises. Spare cash is a buffer — slack — against dire situations but, as executives at [[Lehman]] and [[Credit Suisse]] would say, after the fact, it can only take you so far. Before the fight they might have grumbled, too, that is an expensive dead weight on corporate returns.