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Risk Management after the Great Crash


  • Blommestein, Hans

    () (Tilburg University)


This study takes a closer look at the role of risk (mis)management by financial institutions in the emergence of the Great Crash. It is explained that prior to the crisis too much reliance was placed on the quantitative side of risk management, while not enough attention was paid to qualitative risk management. In this context it is argued that there is an urgent need for dealing more effectively with inherent weaknesses related to institutional- and organisational aspects, governance issues and incentives. More sophistication and a further refinement of existing quantitative risk management models and techniques is not the most important or effective response to the uncertainties and risks associated with a fast-moving financial landscape. In fact, too much faith in a new generation of complex risk models might even lead to even more spectacular risk management problems as during the Great Crash. Against this backdrop, the most promising approach for improving risk management systems is by providing a coherent framework for addressing systematically weaknesses and problems that are of a qualitative nature. However, given the inadequate and very imperfect academic knowledge and tools that are available, risk management as a scientific discipline is not capable of dealing adequately with fundamental uncertainty in the financial system, even if a coherent picture associated with the aforementioned qualitative issues and problems is being provided. This perspective is providing an additional motivation to those authorities that are contemplating to constrain or restructure parts of the architecture of the new financial landscape.

Suggested Citation

  • Blommestein, Hans, 2010. "Risk Management after the Great Crash," Journal of Financial Transformation, Capco Institute, vol. 28, pages 1-19.
  • Handle: RePEc:ris:jofitr:1413

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    References listed on IDEAS

    1. Holthausen, Robert W. & Leftwich, Richard W. & Mayers, David, 1987. "The effect of large block transactions on security prices: A cross-sectional analysis," Journal of Financial Economics, Elsevier, vol. 19(2), pages 237-267, December.
    2. Ajay Subramanian & Robert A. Jarrow, 2001. "The Liquidity Discount," Mathematical Finance, Wiley Blackwell, vol. 11(4), pages 447-474.
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    Cited by:

    1. Hans J. Blommestein & Anja Hubig, 2012. "A Critical Analysis of the Technical Assumptions of the Standard Micro Portfolio Approach to Sovereign Debt Management," OECD Working Papers on Sovereign Borrowing and Public Debt Management 4, OECD Publishing.
    2. Hans J Blommestein & Anja Hubig, 2012. "Is the standard micro portfolio approach to sovereign debt management still appropriate?," BIS Papers chapters,in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 141-155 Bank for International Settlements.

    More about this item


    Financial Crisis; Quantitative and Qualitative Risk management;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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