Corporate governance of banks: Risk appetite as a pre-commitment mechanism

Patricia Jackson 13 October 2014

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Since the Global Crisis the authorities have been focusing on how to make banks safer, with changes to capital and liquidity requirements. Corporate governance of banks and the wider risk culture are also in the frame. Laeven and Ratnovski (2014) look at governance and raise three aspects: better risk management, regulation of pay, and enhanced market discipline. Another lens is to consider the effectiveness of the board and in particular its independence. However, several papers (e.g. Erkens et al. 2012 and Adams 2012) have found that this is negatively related to outcomes in the Crisis.

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Topics:  Financial markets Global crisis

Tags:  global crisis, banking, capital requirements, liquidity requirements, risk management, corporate governance, Culture

Regulating the global insurance industry: Motivations and challenges

Christian Thimann 10 October 2014

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The Financial Stability Board (FSB) has completed its framework for the regulation of systemically important banks (FSB 2013a), and is now turning to the insurance industry. Its approach is inspired by the banking framework, under which 29 banking groups have been classified as systemically important. These banks are subject to a three-pronged framework consisting of enhanced supervision, the preparation of risk- and crisis-management plans, and the application of capital surcharges.

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Topics:  Financial markets Global crisis

Tags:  systemic risk, insurance, global crisis, AIG, regulation, capital requirements, Bailouts, bail-in, financial intermediation, accounting standards, mark-to-market, risk management

Model risk and the implications for risk management, macroprudential policy, and financial regulations

Jon Danielsson, Kevin James, Marcela Valenzuela, Ilknur Zer 08 June 2014

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Risk forecasting is central to macroprudential policy, financial regulations, and the operations of financial institutions. Therefore, the accuracy of risk forecast models – model risk analysis – should be a key concern for the users of such models. Surprisingly, this does not appear to be the case. Both industry practice and regulatory guidance currently neglect the risk that the models themselves can pose, even though this problem has long been noted in the literature (see for example Hendricks 1996 and Berkowitz and O’Brien 2002).

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Topics:  Financial markets

Tags:  financial crises, financial regulation, forecasting, risk management, Macroprudential policy

Toward a world of larger disasters? Ideas for risk-management policies

Stéphane Hallegatte 14 April 2012

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It is widely recognised that economic losses due to natural disasters have been increasing exponentially in the last decades. The main drivers of this trend are the increase in population and the growth in wealth per capita. With more and richer people, it is not surprising to find an increase in disaster losses. More surprising is the fact that, in spite of growing investments in risk reduction, the growth in losses has been as fast as economic growth (eg Miller et al 2008), or even faster than economic growth (eg Bouwer et al 2007).

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Topics:  Environment Migration

Tags:  risk management, natural disasters

The appropriate use of risk models: Part II

Jon Danielsson, Robert Macrae 17 June 2011

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In our last column (Danielsson and Macrae 2011), we consider the three key problems arising from data snooping, error maximisation, and extreme forecasts. All of these will arise to some extent in most practical situations; this fact must be taken into account when we consider the proper use of these models.

Risk models are used in four different (though overlapping) situations:

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Topics:  Financial markets International finance

Tags:  financial regulation, risk management

Too much capital, not enough safety?

Avinash Persaud 13 June 2009

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There is a strong consensus that banks had insufficient reserves set aside for a rainy day and that they should be required to hold more capital – more capital for credit risks, more capital for the economic cycle, more capital for liquidity risks, more capital for operational risks, more capital for risks as a result of compensation practices, in short, more capital for anything that moves (see Gersbach 2009; Perotti and

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Topics:  Financial markets

Tags:  risk, capital requirements, risk management

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