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Risk Management and the Costs of the Banking Crisis

Institute for International Integration Studies, Trinity College, Dublin, CEPR, phonohan{at}tcd.ie

The 2007—8 banking crisis in the advanced economies has exposed deficiencies in risk management and prudential regulation approaches that rely too heavily on mechanical, albeit sophisticated, risk management models. These have aggravated private and economic losses. While fiscal costs were at first limited, it remains to be seen to what extent the taxpayer will be protected. Policymakers and bankers need to recognise the limitations of rules-based regulation and restore a more discretionary and holistic approach to risk management.

Key Words: Banking crisis • prudential regulation • risk management JEL • Classifications: E32;E44;G28;G32

National Institute Economic Review, Vol. 206, No. 1, 15-24 (2008)
DOI: 10.1177/0027950108099839


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