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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.

Suggested Citation

  • Stulz, Rene M., 2008. "Risk Management Failures: What Are They and When Do They Happen?," Working Paper Series 2008-18, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  • Handle: RePEc:ecl:ohidic:2008-18
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    Cited by:

    1. 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.
    2. repec:bla:srbeha:v:34:y:2017:i:6:p:728-745 is not listed on IDEAS
    3. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, Elsevier.
    4. Barakat, Ahmed & Chernobai, Anna & Wahrenburg, Mark, 2014. "Information asymmetry around operational risk announcements," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 152-179.
    5. 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.
    6. Stavros Degiannakis & Christos Floros & Alexandra Livada, 2012. "Evaluating value-at-risk models before and after the financial crisis of 2008: International evidence," Managerial Finance, Emerald Group Publishing, vol. 38(4), pages 436-452, March.
    7. Daniel Broby, 2012. "The regulatory evolution of the post credit crisis fund management industry," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 15(1), pages 5-11, March.
    8. Johannes Steinbrecher, 2016. "Corporate Governance und Unternehmenserfolg - Eine empirische Analyse des Zusammenhangs zwischen den Führungs-, Kontroll- und Anreizstrukturen und der Geschäftsentwicklung deutscher Banken," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 64, April.
    9. Sabur Mollah & Omar Al Farooque & Asma Mobarek & Philip Molyneux, 2018. "Bank Corporate Governance and Future Earnings Predictability," Working Papers 2018-09, Swansea University, School of Management.
    10. Robert S. Kaplan & Anette Mikes, 2016. "Risk Management—the Revealing Hand," Harvard Business School Working Papers 16-102, Harvard Business School.
    11. Langkamp, Christian, 2011. "Counterparty credit risk management in industrial corporates," MPRA Paper 34358, University Library of Munich, Germany.
    12. repec:rsr:supplm:v:65:y:2017:i:6:p:174-183 is not listed on IDEAS
    13. 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.
    14. René M. Stulz, 2015. "Risk-Taking and Risk Management by Banks," Journal of Applied Corporate Finance, Morgan Stanley, vol. 27(1), pages 8-18, March.
    15. repec:rsr:supplm:v:65:y:2017:i:5:p:221-229 is not listed on IDEAS
    16. 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.
    17. René M. Stulz, 2014. "Governance, Risk Management, and Risk-Taking in Banks," NBER Working Papers 20274, National Bureau of Economic Research, Inc.
    18. Eckhard Hein & Daniel Detzer & Nina Dodig (ed.), 2015. "The Demise of Finance-dominated Capitalism," Books, Edward Elgar Publishing, number 16281.

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