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Risk Management Failures: What Are They and When Do They Happen?

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  • Stulz, Rene M.

    (Ohio State U and ECGI)

Abstract

A large loss is not evidence of a risk management failure because a large loss can happen even if risk management is flawless. I provide a typology of risk management failures and show how various types of risk management failures occur. Because of the limitations of past data in assessing the probability and the implications of a financial crisis, I conclude that financial institutions should use scenarios for credible financial crisis threats even if they perceive the probability of such events to be extremely small.

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File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2008/2008-18.pdf
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Bibliographic Info

Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2008-18.

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Date of creation: Oct 2008
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Handle: RePEc:ecl:ohidic:2008-18

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Cited by:
  1. Langkamp, Christian, 2011. "Counterparty credit risk management in industrial corporates," MPRA Paper 34358, University Library of Munich, Germany.
  2. Colletaz, Gilbert & Hurlin, Christophe & Pérignon, Christophe, 2013. "The Risk Map: A new tool for validating risk models," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3843-3854.
  3. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2011. "Financial Risk Measurement for Financial Risk Management," CREATES Research Papers 2011-37, School of Economics and Management, University of Aarhus.
  4. René M. Stulz, 2014. "Governance, Risk Management, and Risk-Taking in Banks," NBER Working Papers 20274, National Bureau of Economic Research, Inc.
  5. Dieter Gramlich & Mikhail V. Oet & Stephen J. Ong, 2013. "Policy in adaptive financial markets—the use of systemic risk early warning tools," Working Paper 1309, Federal Reserve Bank of Cleveland.
  6. Clara-Iulia ZINCA, 2012. "Corporate governance of banks – present and perspectives," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 278-286, May.
  7. Frésard, Laurent & Pérignon, Christophe & Wilhelmsson, Anders, 2011. "The pernicious effects of contaminated data in risk management," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2569-2583, October.

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