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Risk Management and the Costs of the Banking Crisis

  • Patrick Honohan

    (Institute for International Integration Studies, Trinity College, Dublin, CEPR,

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. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards: Evidence From the Subprime Mortgage Market," IMF Working Papers 08/106, International Monetary Fund.
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  8. Gerard Caprio, Jr. and Patrick Honohan, 2008. "Banking Crises," The Institute for International Integration Studies Discussion Paper Series iiisdp242, IIIS.
  9. 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.
  10. 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.
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  12. Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.
  13. 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.
  14. 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.
  15. DellAriccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram G, 2005. "The Real Effect of Banking Crises," CEPR Discussion Papers 5088, C.E.P.R. Discussion Papers.
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  17. Yuliya Demyanyk & Otto Van Hemert, 2007. "Understanding the subprime mortgage crisis," Supervisory Policy Analysis Working Papers 2007-05, Federal Reserve Bank of St. Louis.
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