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Bank Failures: The Limitations of Risk Modelling

  • Patrick Honohan

Overconfidence on the part of bankers and regulators in mechanical risk management models is an important and distinctive driver of bank failures in the current crisis. This paper illustrates the process by drawing on brief case studies of a handful of the biggest failures and losses. There are significant implications for a more holistic and less mechanical approach to risk management and prudential regulation.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp263.

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Date of creation: 01 Oct 2008
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Handle: RePEc:iis:dispap:iiisdp263
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  7. DellAriccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram G, 2005. "The Real Effect of Banking Crises," CEPR Discussion Papers 5088, C.E.P.R. Discussion Papers.
  8. 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.
  9. Darrell Duffie, 2008. "Innovations in credit risk transfer: implications for financial stability," BIS Working Papers 255, Bank for International Settlements.
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  11. Danielle DiMartino & John V. Duca, 2007. "The rise and fall of subprime mortgages," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(nov).
  12. 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.
  13. 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.
  14. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
  15. Andy Mullineux, 2008. "British banking regulation and supervision: between a rock and a hard place," International Economics and Economic Policy, Springer, vol. 4(4), pages 363-370, February.
  16. 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.
  17. Patrick Honohan, 2008. "Risk Management and the Costs of the Banking Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp262, IIIS.
  18. Dwight M. Jaffee, 2006. "Controlling the Interest Rate Risk of Fannie Mae and Freddie Mac," NFI Policy Briefs 2006-PB-04, Indiana State University, Scott College of Business, Networks Financial Institute.
  19. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
  20. Daniel O. Beltran & Laurie Pounder & Charles 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.).
  21. Robert Eisenbeis & W. Frame & Larry Wall, 2007. "An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and An Evaluation of the Policy Options for Reducing Those Risks," Journal of Financial Services Research, Springer, vol. 31(2), pages 75-99, June.
  22. Charles Goodhart & Boris Hofmann & Miguel Segoviano, 2004. "Bank Regulation and Macroeconomic Fluctuations," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 591-615, Winter.
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  24. Martin Cihák & Klaus Schaeck, 2007. "How Well Do Aggregate Bank Ratios Identify Banking Problems?," IMF Working Papers 07/275, International Monetary Fund.
  25. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 149-233.
  26. Dwight Jaffee, 2003. "The Interest Rate Risk of Fannie Mae and Freddie Mac," Journal of Financial Services Research, Springer, vol. 24(1), pages 5-29, August.
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