The Risks of Financial Institutions

The Risks of Financial Institutions

Mark Carey and Rene M. Stulz

Print publication date: 2013

ISBN: 9780226092850

Publisher: University of Chicago Press

Abstract

Until about twenty years ago, the consensus view on the cause of financial-system distress was fairly simple: a run on one bank could easily turn to a panic involving runs on all banks, destroying some and disrupting the financial system. Since then, however, a series of events—such as emerging-market debt crises, bond-market meltdowns, and the Long-Term Capital Management episode—has forced a rethinking of the risks facing financial institutions and the tools available to measure and manage these risks. This book examines the various risks affecting financial institutions and explores a variety of methods to help institutions and regulators more accurately measure and forecast risk. The contributors—from academic institutions, regulatory organizations, and banking—bring a wide range of perspectives and experience to the issue. The result is a volume that points a way forward to greater financial stability and better risk management of financial institutions.

Table of Contents

Introduction

Mark Carey and René M. Stulz

I Market Risk, Risk Modeling, and Financial System Stability

2 Estimating Bank Trading Risk

James O̓Brien and Jeremy Berkowitz

II Systemic Risk

3 How Do Banks Manage Liquidity Risk?

Evan Gatev, Til Schuermann, and Philip E. Strahan

4 Banking System Stability

Philipp Hartmann, Stefan Straetmans, and Casper G. de Vries

5 Bank Concentration and Fragility

Thorsten Beck, Asli Demirgüç-Kunt, and Ross Levine

6 Systemic Risk and Hedge Funds

Nicholas Chan, Mila Getmansky, Shane M. Haas, and Andrew W. Lo

III Regulation

7 Systemic Risk and Regulation

Franklin Allen and Douglas Gale

8 Pillar 1 versus Pillar 2 under Risk Management

Loriana Pelizzon and Stephen Schaefer

IV New Frontiers in Risk Measurement

9 Global Business Cycles and Credit Risk

M. Hashem Pesaran, Til Schuermann, and Björn-Jakob Treutler

10 Implications of Alternative Operational Risk Modeling Techniques

Patrick de Fontnouvelle, Eric S. Rosengren, and John S. Jordan

11 Practical Volatility and Correlation Modeling for Financial Market Risk Management

Torben G. Andersen, Tim Bollerslev, Peter F. Christoffersen, and Francis X. Diebold

12 Special Purpose Vehicles and Securitization

Gary B. Gorton and Nicholas S. Souleles