Working Paper: NBER ID: w11442
Authors: Mark Carey; Ren M. Stulz
Abstract: Over the last twenty years, the consensus view of systemic risk in the financial system that emerged in response to the banking crises of the 1930s and before has lost much of its relevance. This view held that the main systemic problem is runs on solvent banks leading to bank panics. But financial crises of the last two decades have not fit the mold. A new consensus has yet to emerge, but financial institutions and regulators have considerably broadened their assessment of the risks facing financial institutions. The dramatic rise of modern risk management has changed how the risks of financial institutions are measured and how these institutions are managed. However, modern risk management is not without weaknesses that will have to be addressed.
Keywords: No keywords provided
JEL Codes: G21; G22; G28; G10; D81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| emergence of new financial instruments (G19) | inability of traditional risk management frameworks to predict or mitigate crises (H12) |
| new risk management techniques (C58) | change in landscape of financial risk management (F65) |
| increased sophistication in risk measurement (C58) | implications for regulatory approaches and systemic stability (G18) |
| traditional regulatory prescriptions (G18) | reduced probability of some banking crises (F65) |
| traditional regulatory prescriptions (G18) | contribution to other banking crises (F65) |