Risk Management and Regulation

The evolution of risk management has resulted from the interplay of financial crises, risk management practices, and regulatory actions.
READ MORE...
Volume/Issue: Volume 2018 Issue 014
Publication date: August 2018
ISBN: 9781484343913
$20.00
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
Paperback
English
Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , Investments and Securities-General , DPPP , DP , market risk rule , capital requirement , financial system , risk weight , securitization risk exposure , risk manager , CDS market , repo market capacity , managing market risk , capital framework , portfolio model , risk measurement , market infrastructure , Chase Manhattan risk-adjusted capital , Credit risk , CDOs , Securities , Market risk , Loans , Global

Summary

The evolution of risk management has resulted from the interplay of financial crises, risk management practices, and regulatory actions. In the 1970s, research lay the intellectual foundations for the risk management practices that were systematically implemented in the 1980s as bond trading revolutionized Wall Street. Quants developed dynamic hedging, Value-at-Risk, and credit risk models based on the insights of financial economics. In parallel, the Basel I framework created a level playing field among banks across countries. Following the 1987 stock market crash, the near failure of Salomon Brothers, and the failure of Drexel Burnham Lambert, in 1996 the Basel Committee on Banking Supervision published the Market Risk Amendment to the Basel I Capital Accord; the amendment went into effect in 1998. It led to a migration of bank risk management practices toward market risk regulations. The framework was further developed in the Basel II Accord, which, however, from the very beginning, was labeled as being procyclical due to the reliance of capital requirements on contemporaneous volatility estimates. Indeed, the failure to measure and manage risk adequately can be viewed as a key contributor to the 2008 global financial crisis. Subsequent innovations in risk management practices have been dominated by regulatory innovations, including capital and liquidity stress testing, macroprudential surcharges, resolution regimes, and countercyclical capital requirements.