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The Risks of Financial Institutions

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.

The Risks of Financial Institutions 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


       Mark Carey and René M. Stulz


       1. Bank Trading Risk and Systemic Risk
           Philippe Jorion

       2. Estimating Bank Trading Risk: A Factor Model Approach
           James O’Brien and Jeremy Berkowitz
           Comments on Chapters 1 and 2:
             Kenneth C. Abbott
             Paul Kupiec
           Discussion Summary


       3. How Do Banks Manage Liquidity Risk? Evidence from the Equity and Deposit Markets in the Fall of 1998
           Evan Gatev, Til Schuermann, and Philip E. Strahan
           Comment: Mark Carey
           Discussion Summary

       4. Banking System Stability: A Cross-Atlantic Perspective
           Philipp Hartmann, Stefan Straetmans, and Casper G. de Vries
           Comment: Anthony Saunders
           Discussion Summary

       5. Bank Concentration and Fragility: Impact and Mechanics
           Thorsten Beck, Asli Demirgüç-Kunt, and Ross Levine
           Comment: René M. Stulz
           Discussion Summary

       6. Systemic Risk and Hedge Funds
           Nicholas Chan, Mila Getmansky, Shane M. Haas, and Andrew W. Lo
           Comment: David M. Modest
           Discussion Summary


       7. Systemic Risk and Regulation
           Franklin Allen and Douglas Gale
           Comment: Charles W. Calomiris
           Discusion Summary

       8. Pillar 1 versus Pillar 2 under Risk Management
           Loriana Pelizzon and Stephen Schaefer
           Comment: Marc Saidenberg
           Discussion Summary


       9. Global Business Cycles and Credit Risk
           M. Hashem Pesaran, Til Schuermann, and Björn-Jakob Treutler
           Comment: Richard Cantor
           Discussion Summary

       10. Implications of Alternative Operational Risk Modeling Techniques
             Patrick de Fontnouvelle, Eric S. Rosengren, and John S. Jordan
             Comment: Andrew Kuritzkes
             Discussion Summary

       11. Practical Volatility and Correlation Modeling for Financial Market Risk Management
             Torben G. Andersen, Tim Bollerslev, Peter F. Christofferson, and Francis X. Diebold
             Comment: Pedro Santa-Clara
             Discussion Summary

       12. Special Purpose Vehicles and Securitization
             Gary B. Gorton and Nicholas S. Souleles
             Comment: Peter Tufano
             Discussion Summary

       13. Default Risk Sharing between Banks and Markets: The Contribution of Collateralized Debt Obligations
             Günter Franke and Jan Krahnen
             Comment: Patricia Jackson
             Discussion Summary

Author Index
Subject Index

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