Connectedness and contagion: protecting the financial system from panics

The Dodd-Frank Act of 2010 was intended to reform financial policies in order to prevent another massive crisis such as the financial meltdown of 2008. Dodd-Frank is largely premised on the diagnosis that connectedness was the major problem in that crisis - that is, that financial institutions were overexposed to one another, resulting in a possible chain reaction of failures. In this work, Hal Scott argues that it is not connectedness but contagion that is the most significant element of systemic risk facing the financial system.