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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. Darrell Duffie, 2008. "Innovations in credit risk transfer: implications for financial stability," BIS Working Papers 255, Bank for International Settlements.
  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.
  3. Dell'Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram, 2008. "The real effect of banking crises," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 89-112, January.
  4. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
  5. 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.
  6. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
  7. 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.
  8. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 149-233.
  9. 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.
  10. Paul S. Willen & Adam Hale Shapiro & Kristopher Gerardi, 2008. "Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures," 2008 Meeting Papers 345, Society for Economic Dynamics.
  11. 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.
  12. Adam B. Ashcraft & Til Schuermann, 2008. "Understanding the securitization of subprime mortgage credit," Staff Reports 318, Federal Reserve Bank of New York.
  13. Daniel O. Beltran & Laurie Pounder Demarco & Charles P. 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. Glenn Hoggarth & Ricardo Reis & Victoria Saporta, 2001. "Costs of banking system instability: some empirical evidence," Bank of England working papers 144, Bank of England.
  15. 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.
  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. Martin Cihak & Klaus Schaeck, 2007. "How Well Do Aggregate Bank Ratios Identify Banking Problems?," IMF Working Papers 07/275, International Monetary Fund.
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