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Risk Management and the Costs of the Banking Crisis

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Author Info

  • Patrick Honohan

    (Institute for International Integration Studies, Trinity College, Dublin, CEPR, phonohan@tcd.ie)

Abstract

The 2007—8 banking crisis in the advanced economies has exposed deficiencies in risk management and prudential regulation approaches that rely too heavily on mechanical, albeit sophisticated, risk management models. These have aggravated private and economic losses. While fiscal costs were at first limited, it remains to be seen to what extent the taxpayer will be protected. Policymakers and bankers need to recognise the limitations of rules-based regulation and restore a more discretionary and holistic approach to risk management.

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Bibliographic Info

Article provided by National Institute of Economic and Social Research in its journal National Institute Economic Review.

Volume (Year): 206 (2008)
Issue (Month): 1 (October)
Pages: 15-24

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Handle: RePEc:sae:niesru:v:206:y:2008:i:1:p:15-24

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Related research

Keywords: Banking crisis; prudential regulation; risk management JEL; Classifications: E32; E44; G28; G32;

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References

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  1. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 149-233.
  2. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
  3. Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, 03.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, vol. 98(2), pages 339-44, May.
  5. Yuliya Demyanyk & Otto Van Hemert, 2007. "Understanding the subprime mortgage crisis," Supervisory Policy Analysis Working Papers 2007-05, Federal Reserve Bank of St. Louis.
  6. Nicola Cetorelli & Linda S. Goldberg, 2008. "Banking globalization, monetary transmission, and the lending channel," Staff Reports 333, Federal Reserve Bank of New York.
  7. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards," IMF Working Papers 08/106, International Monetary Fund.
  8. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
  9. Darrell Duffie, 2008. "Innovations in credit risk transfer: implications for financial stability," BIS Working Papers 255, Bank for International Settlements.
  10. Honohan, Patrick, 2002. "Comment on "Costs of banking system instability: Some empirical evidence"," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 857-860, May.
  11. Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.
  12. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
  13. Daniel O. Beltran & Laurie Pounder & Charles Thomas, 2008. "Foreign exposure to asset-backed securities of U.S. origin," International Finance Discussion Papers 939, Board of Governors of the Federal Reserve System (U.S.).
  14. Martin Cihák & Klaus Schaeck, 2007. "How Well Do Aggregate Bank Ratios Identify Banking Problems?," IMF Working Papers 07/275, International Monetary Fund.
  15. Giovanni Dell'Ariccia & Raghuram Rajan & Enrica Detragiache, 2005. "The Real Effect of Banking Crises," IMF Working Papers 05/63, International Monetary Fund.
  16. Adam B. Ashcraft & Til Schuermann, 2008. "Understanding the securitization of subprime mortgage credit," Staff Reports 318, Federal Reserve Bank of New York.
  17. Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
  18. Kristopher Gerardi & Adam Hale Shapiro & Paul S. Willen, 2007. "Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures," Working Papers 07-15, Federal Reserve Bank of Boston.
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Citations

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Cited by:
  1. Honohan, Patrick & Donovan, Donal & Gorecki, Paul & Mottiar, Rafique, 2010. "The Irish Banking Crisis: Regulatory and Financial Stability Policy," MPRA Paper 24896, University Library of Munich, Germany.
  2. Matej Marinc & Razvan Vlahu, 2011. "The Economic Perspective of Bank Bankruptcy Law," DNB Working Papers 310, Netherlands Central Bank, Research Department.
  3. Patrick Honohan, 2008. "Bank Failures: The Limitations of Risk Modelling," The Institute for International Integration Studies Discussion Paper Series iiisdp263, IIIS.
  4. Patrick Honohan, 2008. "Containment and Resolution in the Financial Crisis: Too Little, Too Late," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(4), pages 22-27, December.
  5. Gemma Carolillo & Piero Mastroberardino & Claudio Nigro, 2013. "The 2007 financial crisis: strategic actors and processes of construction of a concrete system," Journal of Management and Governance, Springer, vol. 17(2), pages 453-489, May.
  6. FitzGerald, John & Goggin, Jean & Bergin, Adele, 2008. "Economic Assessment of the Euro Area: Autumn Report 2008," Research Series, Economic and Social Research Institute (ESRI), number sustat27.
  7. Philip R. Lane, 2011. "External Imbalances and Macroeconomic Policy in New Zealand," The Institute for International Integration Studies Discussion Paper Series iiisdp376, IIIS.

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