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Risk Management and the Costs of the Banking Crisis

  • Patrick Honohan

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

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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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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  1. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
  2. 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.
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  4. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
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  6. P. Honohan, 2000. "Banking System Failures in Developing and Transition Countries: Diagnosis and Prediction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 29(1), pages 83-109, 02.
  7. 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.
  8. Cetorelli, Nicola & Goldberg, Linda S., 2008. "Banking globalization, monetary transmission and the lending channel," Discussion Paper Series 1: Economic Studies 2008,21, Deutsche Bundesbank, Research Centre.
  9. Edward E. Leamer, 2007. "Housing IS the Business Cycle," NBER Working Papers 13428, National Bureau of Economic Research, Inc.
  10. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
  11. DellAriccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram G, 2005. "The Real Effect of Banking Crises," CEPR Discussion Papers 5088, C.E.P.R. Discussion Papers.
  12. Martin Cihák & Klaus Schaeck, 2007. "How Well Do Aggregate Bank Ratios Identify Banking Problems?," IMF Working Papers 07/275, International Monetary Fund.
  13. 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.
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  16. Yuliya Demyanyk & Otto Van Hemert, 2007. "Understanding the subprime mortgage crisis," Supervisory Policy Analysis Working Papers 2007-05, Federal Reserve Bank of St. Louis.
  17. Darrell Duffie, 2008. "Innovations in credit risk transfer: implications for financial stability," BIS Working Papers 255, Bank for International Settlements.
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