- Garry Schinasi
- Published Date:
- December 2005
Barrier options: Also known as knock-out, knock-in, or trigger options. Path-dependent options that are either activated (knocked in) or terminated (knocked out) if a specified spot rate reaches a specified trigger level or levels between inception and expiry. Before termination, knock-out options behave identically to standard European-style options, but carry lower initial premiums because they may be extinguished before reaching maturity. By contrast, knock-in options behave identically to European-style options only if they are activated and so also command a lower premium.
Book value: The value of an asset that appears on a balance sheet based on historic cost or the original purchase price.
Broker: An intermediary between buyers and sellers who acts in a transaction as an agent, rather than a principal; charges a commission or fee; and—unlike a dealer—does not buy or sell for his or her own account or make markets. In some jurisdictions, the term “broker” also refers to the specific legal or regulatory status of institutions performing this function.
Cherry picking: A practice in some bankruptcy proceedings of enforcing contracts favorable to the bankrupt and abrogating related obligations to the unsecured creditors.
Clearing and settlement: The process of matching parties in a transaction according to the terms of a contract and the fulfillment of obligations (for example, through the exchange of securities or funds).
Clearinghouse: An entity, typically affiliated with a futures or options exchange, that clears trades through delivery of the commodity or purchase of offsetting futures positions and serves as a central counterparty. It may also hold performance bonds posted by dealers to assure fulfillment of futures and options obligations.
Closeout netting (see Netting arrangement): A written contract to combine offsetting credit exposures between two or more parties when a contract is terminated.
Closeout procedures: Steps taken by a nondefaulting party to terminate a contract prior to its maturity when the other party fails to perform according to the contract’s terms.
Collateral: Assets pledged as security to ensure payment or performance of an obligation.
Collateralized debt obligation (CDO): Securitized interests in pools of assets, usually comprising loans or debt instruments. A CDO may be called a collateralized loan obligation or collateralized bond obligation or a collateralized mortgage obligation if it holds only loans or bonds or mortgages, respectively. Investors bear the credit risk of the collateral. Multiple tranches of securities are issued by the CDO, offering investors various maturity and credit risk characteristics, categorized as senior, mezzanine, and subordinated/equity, according to their degree of credit risk. If there are defaults or the CDO’s collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches.
Credit derivative: A privately negotiated agreement that explicitly shifts credit risk from one party to the other. A bilateral financial contract that isolates credit risk from an underlying instrument and transfers that credit risk from one party to the contract (protection buyer) to the other (protection seller). There are two main categories of credit derivatives: instruments such as credit default swaps in which contingent payments occur as a result of a credit event; and instruments including credit spread options, which seek to isolate the credit spread component of an instrument’s market yield.
Credit exposure: The present value of the amount receivable or payable on a contract, consisting of the sum of current exposure and potential future exposure.
Creditor stay exemption: The exclusion of certain creditors from the automatic stay provision of the bankruptcy code, which generally limits creditors’ capacity to directly collect debts owed by a bankrupt party, including through netting of outstanding contracts. An example is the U.S. Bankruptcy Code statutory exceptions for repurchase agreements, securities contracts, commodity contracts, swap agreements, and forward contracts, where counterparties can close out exempt OTC derivatives positions outside of bankruptcy procedures.
Credit risk: The risk associated with the possibility that a borrower will be unwilling or unable to fulfill its contractual obligations, thereby causing the holder of the claim to suffer a loss.
Cross-currency swap (or Currency coupon swap): A variant of the standard interest-rate swap in which the interest rate in one currency is fixed, and the interest rate in the other is floating.
Currency carry trade: A strategy in which an investor borrows in a foreign country with lower interest rates than the home country and invests the funds in the domestic market, usually in fixed-income securities.
Currency derivatives: Derivatives contracts involving the exchange of two or more currencies at a specified price and date. For example, see currency option.
Currency option: The right, but not the obligation, to buy (call) or sell (put) a currency with another currency at a specified exchange rate (strike price) during a specified period ending on the expiration date.
Dealer: An intermediary who acts as a principal in a transaction, buys (or sells) on his or her own account, and thus takes positions and risks. The dealer earns profit from bid-ask spreads. A dealer can be distinguished from a broker, who acts only as an agent for customers and charges commission. In some jurisdictions, the term “dealer” also refers to the specific legal or regulatory status of institutions performing this function.
Derivatives (exchange-traded and over-the-counter): Financial contracts whose value derives from underlying securities prices, interest rates, foreign exchange rates, market indexes, or commodity prices. Exchange-traded derivatives are standardized products traded on the floor of an organized exchange and usually require a good faith deposit, or margin, when buying or selling a contract. Over-the-counter derivatives, such as currency swaps and interest rate swaps, are privately negotiated bilateral agreements transacted off organized exchanges.
Dollar (or other currency) put option: A contract that gives the holder the right to sell dollars (or other currency) at a predetermined price.
Down-and-out call (put) option: A call (put) option that expires if the market price of the underlying asset drops below (rises above) a predetermined expiration price.
Equity swap: A swap in which the total or price return on an equity is exchanged for a stream of cash flows based on a short-term interest rate index.
Foreign-exchange forward: A contractual obligation between two parties to exchange a particular currency at a set price on a future date. The buyer of the forward agrees to pay the price and take delivery of the currency and is said to be “long the forward,” while the seller of the forward agrees to deliver the currency at the agreed price on the agreed date. Collateral may be deposited, but cash is not exchanged until the delivery date.
Forward contract: A contractual obligation between two parties to exchange a particular good or instrument at a set price on a future date. The buyer of the forward agrees to pay the price and take delivery of the good or instrument and is said to be “long the forward,” while the seller of the forward agrees to deliver the good or instrument at the agreed price on the agreed date. Collateral may be deposited, but cash is not exchanged until the delivery date. Forward contracts, unlike futures, are not traded on organized exchanges.
Forward rate agreement (FRA): A contract determining an interest rate to be paid or received on a specified obligation beginning at a start date in the future. A notional principal contract such as an FRA need not be with the party on the other side of the obligation that the FRA contract is linked to. Any given gain or loss on the FRA is similar to a gain or loss on an option or futures contract with regard to its impact on the return of an underlying position.
Futures: Negotiable contracts to make or take delivery of a standardized amount of a commodity or security at a specific date for an agreed price, under terms and conditions established by a regulated futures exchange where trading takes place. Futures are essentially standardized forward contracts that are traded on an organized exchange and subject to the requirements defined by the exchange.
Haircut: The difference between the amount advanced by a lender and the market value of collateral securing the loan. For example, if a lender makes a loan equal to 90 percent of the value of marketable securities that are provided as collateral, the difference (10 percent) is the haircut.
Hedging: The process of offsetting an existing risk exposure by taking an opposite position in the same or a similar risk, for example, through purchasing derivatives.
Intermediation: The process of transferring funds from an ultimate source to the ultimate user. A financial institution, such as a bank, intermediates credit when it obtains money from a depositor and relends it to a borrowing customer.
Knock-in options: See Barrier options.
Knock-out options: See Barrier options.
Legal risk: Risks that arise when a counterparty might not have the legal or regulatory authority to engage in a transaction or when the law may not perform as expected. Legal risks also include compliance and regulatory risks, which concern activities that might breach government regulations, such as market manipulation, insider trading, and suitability restrictions.
Leverage: The magnification of the rate of return (positive and negative) on a position or investment beyond the rate obtained by direct investment of own funds in the cash market. It is often measured as the ratio of on- and off-balance-sheet exposures to capital. Leverage can be built up by borrowing (on-balance-sheet leverage, commonly measured by debt-to-equity ratios) or through the use of off-balance-sheet transactions.
LIBOR (London Inter-Bank Offered Rates): The primary fixed income index reference rates used in the Euromarkets. Most international floating rates are quoted as LIBOR plus or minus a spread. In addition to the traditional Eurodollar and sterling LIBOR rates, yen LIBOR, Swiss franc LIBOR, and so forth, are also available and widely used.
Liquidity: The ability to raise cash easily and with minimal delay. Market liquidity is the ability to transact business in necessary volumes without unduly moving market prices. Funding liquidity is the ability of an entity to fund its positions and meet, when due, the cash and collateral demands of counterparties, credit providers, and investors.
Loss given default: Usually refers to the loss on the principal of a loan once the borrower defaults.
Margin: The amount of cash or eligible collateral an investor must deposit with a counterparty or intermediary when conducting a transaction. For example, when buying or selling a futures contract, it is the amount that must be deposited with a broker or clearinghouse. If the futures price moves adversely, the investor might receive a margin call—that is, a demand for additional funds or collateral (variation margin) to offset position losses in the margin account.
Market maker: An intermediary that holds an inventory of financial instruments (or risk positions) and stands ready to execute buy and sell orders on behalf of customers at posted prices or on its own account. The market maker assumes risk by taking possession of the asset or position. In organized exchanges, market makers are licensed by a regulating body or by the exchange itself.
Market risk: The risk that arises from possible changes in the prices of financial assets and liabilities; it is typically measured by price volatility.
Mark-to-market: The valuation of a position or portfolio by reference to the most recent price at which a financial instrument can be bought or sold in normal volumes. The mark-to-market value might equal the current market value—as opposed to historic accounting or book value—or the present value of expected future cash flows.
Master agreement: Comprehensive documentation of standard contractual terms and conditions that covers a range of OTC derivatives transactions between two counterparties.
Moral hazard: Actions of economic agents that are to their own benefit but to the detriment of others and arise when incomplete information or incomplete contracts prevent the full assignment of damages (or benefits) to the agent responsible. For example, under asymmetric information, borrowers may have incentives to engage in riskier activities that may be to their advantage, but which harm the lender by increasing the risk of default.
Netting arrangement: A written contract to combine offsetting obligations between two or more parties to reduce them to a single net payment or receipt for each party. For example, two banks owing each other $10 million and $12 million, respectively, might agree to value their mutual obligation at $2 million (the net difference between $10 million and $12 million) for accounting purposes. Netting can be done bilaterally—when two parties settle contracts at net value—as is standard practice under a master agreement, or multilaterally through a clearinghouse. Closeout netting combines offsetting credit exposures between two parties when a contract is terminated.
Notional amount or principal: The reference value (which is typically not exchanged) on which the cash flows of a derivatives contract are based. For example, the notional principal underlying a swap transaction is used to compute swap payments in an interest rate swap or currency swap.
Off-balance-sheet items: Financial commitments that do not involve booking assets or liabilities, and thus do not appear on the balance sheet.
Off-the-run (U.S. Treasury bonds): All Treasury bonds and notes issued before the most recently issued bond or note of a particular maturity. Once a new Treasury security of any maturity is issued, the previously issued security with the same maturity becomes the off-the-run bond or note. Because off-the-run securities are less frequently traded, they typically are less expensive and therefore carry a slightly greater yield.
On-the-run (U.S. Treasury bonds): The most recently issued U.S. Treasury bond or note of a particular maturity. The on-the-run bond or note is the most frequently traded Treasury security of its maturity. Because on-the-run issues are the most liquid, they typically are slightly more expensive and, therefore, yield less than their off-the-run counterparts.
Operational risk: Risk of losses resulting from management failure, faulty internal controls, fraud, or human error. It includes execution risk, which encompasses situations where trades fail to be executed, or more generally, any problem in back-office operations.
Option: A contract granting the right, and not the obligation, to purchase or sell an asset during a specified period at an agreed price (the exercise price or strike price). A call option is a contract that gives the holder the right to buy from the option seller an asset at a specified price; a put option is a contract that gives the holder the right to sell an asset at a predetermined price. Options are traded both on exchanges and over the counter.
Over-the-counter (OTC) market: A market for securities where trading is not conducted in an organized exchange but through bilateral negotiations. Often these markets are intermediated by brokers or dealers. Examples of OTC derivatives transactions include foreign exchange forward contracts, currency swaps, and interest rate swaps.
Performance bonds: Bonds that provide specific monetary payments if a counterparty fails to fulfill a contract, thereby providing protection against loss in the event the terms of a contract are violated.
Potential future exposure: The amount potentially at risk over the term of a derivatives contract if a counterparty defaults. It varies over time in response to the perceived risk of asset price movements that can affect the value of the exposure.
Replacement value or replacement cost: The current exposure adjusted to reflect the cost of replacing a defaulted contract.
Repurchase agreement: To buy (sell) a security while at the same time agreeing to sell (buy) the same security at a predetermined future date. The price at which the reverse transaction takes place sets the interest rate (or repo rate) over the period of the contract.
Swap: A derivatives contract that involves a series of exchanges of payments. Examples are agreements to exchange interest payments in a fixed-rate obligation for interest payments in a floating-rate obligation (an interest rate swap), or one currency for another (a foreign exchange swap) and reverse the exchange at a later date. A cross-currency interest rate swap is the exchange of a fixed-rate obligation in one currency for a floating-rate obligation in another currency.
Tesobono swap: A popular instrument used by Mexican banks in the period prior to the Mexican crisis of 1994–95. Tesobono swaps allowed Mexican banks to leverage their holdings of exchange-rate linked Mexican treasury bills (Tesobonos). A bank received the tesobono yield and paid U.S. dollar LIBOR plus a premium (in basis points) to an offshore counterparty, which in turn hedged its swap position by purchasing tesobonos in the spot market.
Total return swap: A form of credit derivative. A bilateral financial contract in which one party (the total return payer) makes floating payments to the other party (the total return receiver) equal to the total return on a specified asset or index (including interest or dividend payments and net price appreciation) in exchange for amounts that generally equal the total return payer’s cost of holding the specified asset on its balance sheet. Unlike with a credit default swap, the floating payments are based on the total economic performance of a specified asset and are not contingent upon the occurrence of a credit event.
Value at Risk (VaR): A statistical estimate of the potential mark-to-market loss to a trading position or portfolio from an adverse market move over a given time horizon. VaR reflects a selected confidence level, so actual losses during a period are not expected to exceed the estimate more than a pre-specified number of times. VaR is the maximum potential loss that can be incurred on a given financial position over a determined time period, and at a certain level of probability.
Note: Many of the items in this glossary were adapted from G. L. Gastineau, 1992, Swiss Bank Corporation Dictionary of Financial Risk Management; JP Morgan/Risk Management, 2001, Guide to Risk Management; Schinasi and others (2000); selected issues of IMF, International Capital Markets: Recent Developments, Prospects, and Key Issues; and selected issues of IMF, Global Financial Stability Report.
Acemoglu, D., and F.Zilibotti, 1997, “Was Prometheus Unbound by Chance? Risk, Diversification and Growth,”Journal of Political Economy, Vol. 105 (Issue 4), pp. 709–51.
Acharya, Viral, 2001, “A Theory of Systemic Risk and Design of Prudential Bank Regulation”(Working Paper, London Business School—Institute of Finance and Accounting). Available via the Internet: http://ssrn.com/abstract=236401
Akerlof, George A., 1970, “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,”Quarterly Journal of Economics,Vol. 84 (August), pp. 488–500.
Akyuz, Yilmaz, ed., 2002, Reforming the Global Financial Architecture (New York: United Nations).
Allais, Maurice, 1947, Economie et interet,2 Volumes (Paris: Imprimerie Nationale).
Allen, F., 2005, “Modelling Financial Instability,”National Institute Economic Review, No. 192 (April), pp. 57–67.
Allen, F., and D.Gale, 2004, “Financial Intermediaries and Markets,”Econometrica, Vol. 72 (July), pp. 1023–61.
Allen, M., C.Rosenberg, C.Keller, B.Setser, and N.Roubini, 2002, “A Balance Sheet Approach to Financial Crisis,”IMF Working Paper No. WP/02/210 (Washington: International Monetary Fund).
Andrews, DavidM., C. RandallHenning, and LouisW. Pauly, eds., 2002, Governing the World’s Money (Ithaca, New York: Cornell University Press).
Arthur, W. B., JohnH. Holland, BlakeLeBaron, RichardPalmer, and PaulTaylor, 1997, “Asset Pricing Under Endogenous Expectations in an Artificial Stock Market,”in The Economy as an Evolving Complex System II, Conference proceedings of the “Global Economy Workshop,” August 1995, Studies in the Sciences of Complexity, Vol. XXVII, ed. by W.Brian Arthur, StevenN.Durlauf, and DavidA. Lane (Reading, Massachusetts: Addison-Wesley), pp. 15–44.
Bagehot, Walter, 1873, Lombard Street (London: Paul Kegan, 14th ed.).
Bank for International Settlements, 1998, “Implications of Structural Change on the Nature of Systemic Risk” (unpublished; Basel).
Bank for International Settlements, 2000, “Report on Lender of Last Resort,” Committee on Global Financial Systems (Basel).
Bank for International Settlements, 2001a, “Consolidation in the Financial Sector,” report by the Group of Ten Working Party on Financial Sector Consolidation (Basel).
Bank for International Settlements, 2001b, “Cycles and the Financial System,”71st Annual Report,Chapter VII (Basel), pp. 123–41.
Bank for International Settlements, 2003, “Trends in Risk Integration and Aggregation,” The Joint Forum, Basel Committee on Banking Supervision (Basel).
Bank of England, 1997, “Memorandum of Understanding Between H.M. Treasury, the Bank of England and the Financial Services Authority.”Available via the Internet: www.bankofengland.co.uk.
Bank of England, 1999, Financial Stability Review, No. 7 (London).
Bank of England, 2000, Financial Stability Review, No. 8 (London).
Bank of England, 2001, Financial Stability Review, No. 9 (London).
Barkin, J.Samuel, 2003, Social Construction and the Logic of Money (Albany, New York: State University of New York Press).
Barnett, William A., JohnGeweke, and KarlShell, eds., 1989, Economic Complexity: Chaos, Sunspots, Bubbles, and Nonlinearity (Cambridge: Cambridge University Press).
Barr, N., 1998, The Economics of the Welfare State (Oxford: Oxford University Press, 3rd ed.).
Barrell, R., E. P.Davis, and O.Pomerantz, 2005, “Costs of Financial Instability, Household-Sector Balance Sheets and Consumption,”NIESR Discussion Paper No. 243 (London: National Institute of Economic and Social Research).
Basel Committee on Banking Supervision, 1995, Basel Capital Accord: Treatment of Potential Exposure for Off-Balance-Sheet Items (Basel: Bank for International Settlements).
Basel Committee on Banking Supervision, 2000a, Banks’ Interactions with Highly Leveraged Institutions: Implementation of the Basel Committee’s Sound Practices Paper (Basel: Bank for International Settlements).
Basel Committee on Banking Supervision, 2000b, Sound Practices for Managing Liquidity in Banking Organisations (Basel: Bank for International Settlements).
Basel Committee on Banking Supervision, 2004, International Convergence of Capital Measurement and Capital Standards: A Revised Framework (Basel: Bank for International Settlements).
Beales, Richard, and JenniferHughes, 2005, “New York Fed Calls Meeting on Derivatives,”Financial Times (New York: August25), p. 16.
Beck, T., A.Demirgüç-Kunt, and R.Levine, 2003, “Bank Concentration and Crises,”NBER Working Paper No. 9921 (Cambridge, Massachusetts: National Bureau for Economic Research).
Bernardo, A. E., and I.Welch, 2004, “Liquidity and Financial Market Runs,”The Quarterly Journal of Economics, Vol. CXIX (February), pp. 135–58.
Bisignano, Joseph, 1998, “Towards an Understanding of the Changing Structure of Financial Intermediation: An Evolutionary Theory of Institutional Survival,” Societe Universitaire Europeenne de Recherches Financieres (SUERF) Studies #4 (Amsterdam).
Blaschke, W., M.Jones, G.Majnoni, and S.Peria, 2001, “Stress Testing of Financial Systems: A Review of the Issues, Methodologies, and FSAP Experiences,”IMF Working Paper No. WP/01/88 (Washington: International Monetary Fund).
Borch, Karl H., 1990, Economics of Insurance (Amsterdam: North-Holland).
Bordo, M., 2000, “Sound Money and Sound Financial Policy,”paper prepared for the conference“Anna Schwartz–The Policy Influence,”American Enterprise Institute, Washington, April14.
Bordo, Michael, BarryEichengreen, DanielaKlingebiel, and MariaMartinez-Peria, 2001, “Is the Crisis Problem Growing More Severe?”Economic Policy, Vol. 16 (April), pp. 51–82.
Borio, Claudio, 2003, “Towards a Macroprudential Framework for Financial Supervision and Regulation?”BIS Working Paper No. 128 (Basel: Bank for International Settlements).
Borio, Claudio, and PhilipLowe, 2002, “Asset Prices, Financial and Monetary Stability: Exploring the Nexus,”BIS Working Paper No. 114 (Basel: Bank for International Settlements).
Braudel, Fernand, 1977, Afterthoughts on Material Life and Capitalism (Baltimore, Maryland: Johns Hopkins University Press).
Brenner, Reuven, 2001, The Force of Finance: Triumph of the Capital Markets (New York: Texere Publishing Limited).
British Bankers’ Association, 2004, BBA Credit Derivatives Report 2003/2004, BBA Enterprises Ltd. (London).
Brock, William A., 1986, “Distinguishing Random and Deterministic Systems: Abridged Version,”Journal of Economic Theory, Vol. 40 (October), pp. 168–95.
Brock, William A., 1997, “Asset Price Behavior in Complex Environments,”in The Economy as an Evolving Complex System II, Conference proceedingsVolume XXVIIin Studies in the Sciences of Complexity, ed. by W.Brian Arthur, StevenN. Durlauf, and DavidA. Lane (Reading, Massachusetts: Addison-Wesley), pp. 385–423.
Bryant, John, 1980, “A Model of Reserves, Bank Runs, and Deposit Insurance,”Journal of Banking and Finance, Vol. 4 (December), pp. 335–44.
Campbell, J., and R.Shiller, 2001, “Valuation Ratios and the Long-Run Stock Market Outlook: An Update,”NBER Working Paper No. 8221 (Cambridge, Massachusetts: National Bureau of Economic Research).
Capie, Forrest, 2000, “The Evolution of the Lender of Last Resort: The Bank of England” (unpublished; City University, London, Business School).
Caprio, Gerard Jr., and DanielaKlingebiel, 1997, “Bank Insolvency: Bad Luck, Bad Policy, or Bad Banking,” World Bank Economic Review (January).
Caprio, Gerard Jr., and DanielaKlingebiel, 1999, “Episodes of Systematic and Borderline Financial Distress,” (unpublished; Washington, The World Bank).
Caprio, Gerard Jr., DanielaKlingebiel, LucLaeven, and GuillermoNoguera, 2003, “An Update of the Caprio-Klingebiel Database,” (unpublished; Washington, The World Bank). Available via the Internet: http://www1.worldbank.org/finance/html/database_sfd.html
Cass, David, and MenahemE. Yaari, 1966, “A Re-Examination of the Pure Consumption Loans Model,”Journal of Political Economy, Vol. 74 (June), pp. 353–67.
Chant, John, 2003, “Financial Stability as a Policy Goal,” in Essays on Financial Stability, Bank of Canada Technical Report No. 95 (Ottawa: Bank of Canada).
Coase, Ronald, 1960, “The Problem of Social Cost,”The Journal of Law and Economics, Vol. 3 (October), pp. 1–44.
Committee on the Global Financial System (CGFS), 2005, “Stress Testing at Major Financial Institutions: Survey Results and Practice.” CGFS Publication No. 24. Available via the Internet: http://www.bis.org/publ/cgfs24.htm
Cornes, Richard, and ToddSandler, 1996, The Theory of Externalities, Public Goods, and Club Goods (Cambridge, England: Cambridge University Press).
Corrigan, Gerald E., 1999, Testimony on Behalf of Counterparty Risk Management Policy Group before the Subcommittee on Capital Markets, Securities and Government Sponsored Enterprises, Committee on Banking Financial Services, U.S. House of Representatives (Washington DC: March3). Available via the Internet: http://financialservices.house.gov/banking/3399coth.htm
Corrigan, Gerald E., 2005, “Transmittal Letter,” Toward Greater Financial Stability: A Private Sector Perspective (New York). Available via the Internet: http://www.crmpolicygroup.org.
Counterparty Risk Management Policy Group, 1999, “Improving Counterparty Risk Management Practices” (New York).
Counterparty Risk Management Policy Group II, 2005, Toward Greater Financial Stability: A Private Sector Perspective (New York). Available via the Internet: http://www.crmpolicygroup.org.
Covitz, Daniel M., DianaHancock, and MyronL. Kwast, 2000, “Mandatory Subordinated Debt: Would Banks Face More Market Discipline?” (working paper; Washington: Board of Governors of the Federal Reserve System).
Crockett, A., 1996, “The Theory and Practice of Financial Stability,”De Economist, Vol. 144 (No. 4), pp. 531–8.
Crockett, A., 1997, “The Theory and Practice of Financial Stability,”GEI Newsletter, Issue No. 6 (United Kingdom: Gonville and Caius College Cambridge).
Crockett, A., 2000a, “Marrying the Micro- and Macroprudential Dimensions of Financial Stability,”remarks before the Eleventh International Conference of Banking Supervisors, Basel, September 20–21. Available via the Internet: http://www.bis.org/speeches/sp000921.htm
Crockett, A., 2000b, “In Search of Anchors for Financial and Monetary Stability,” speech at the SUERF Colloquium, Vienna, April 27–29. Available via the Internet: http://www.bis.org/speeches/sp000427.htm
Crockett, A., 2001a, “Market Discipline and Financial Stability,”speech at the Banks and Systemic Risk Conference, London, May 23–25. Reprinted in Bank of England’s Financial Stability Review, Issue 10 (June), pp. 166–73. Available via the Internet: http://www.bis.org/speeches/sp010523.htm
Crockett, A., 2001b, “Monetary Policy and Financial Stability,” speech at the HKMA Distinguished Lecture, Hong Kong, February 13. Available via the Internet: http://www.bis.org/speeches/sp010213.htm
Cunningham, D. P., and J. D.Cohn, 2005, “U.S. Netting Legislation: The Financial Contract Provisions Title IX of the Bankruptcy Reform Act of 2005 (S.256),” memorandum for the International Swaps and Derivatives Association (Allen and OveryLLP, March).
Das, Udaibir S., MarkQuintyn, and KenChenard, 2003, “Does Regulatory Governance Matter for Financial System Stability: An Empirical Analysis,”paper prepared for Bank of Canada Conference, “The Evolving Financial System and Public Policy,”Ottawa, December.
Davies, Howard, 2001, Remarks at the Insurance Institute of London Annual Luncheon, London, March9.
Davies, Howard, 2002, “Rational Expectations—What Should the Market, and Policyholders, Expect from Insurance Regulation?” The Association of Insurance and Risk Management (AIRMIC) Annual Lecture, London, January29. Available via the Internet: http://www.fsa.gov.uk/Pages/Library/Communication/Speeches/2002/sp87.shtml
Davis, Phillip, 2002, “A Typology of Financial Instability,”Financial Stability Report, No. 2, (Vienna: Oesterreichische Nationalbank).
De Bandt, Oliver, and PhilippHartmann, 1998, “What is Systemic Risk Today?”in Risk Measurement and Systemic Risk, Proceedings of the Second Joint Central Bank Research Conference (Tokyo: Bank of Japan), pp. 37–84.
De Bandt, Oliver, and PhilippHartmann, 2000, “Systemic Risk: A Survey,”ECB Working Paper No. 35 (Frankfurt: European Central Bank).
Demirgüç-Kunt, Asli, and RossLevine, eds., 2001, Financial Structure and Economic Growth: A Cross-Country Comparison of Banks, Markets, and Development (Cambridge, Massachusetts: MIT Press).
DNB (De Nederlandsche Bank), 2000, “Guardian of Financial Stability,” DNB Quarterly Bulletin, No. 4 (December), pp. 5–10.
Deutsche Bank, 2002, Credit Derivatives Outlook, Deutsche Bank (January).
Deutsche Bundesbank, 2003, “Report on the Stability of the German Financial System,” Monthly Report (December).
Dewatripont, Mathias, and JeanTirole, 1993, The Prudential Regulation of Banks (Cambridge, Massachusetts: MIT Press).
Diamond, Douglas W., 1984, “Financial Intermediation and Delegated Monitoring,”Review of Economic Studies, Vol. 51 (July), pp. 393–414.
Diamond, Douglas W., and P.Dybvig, 1983, “Bank Runs, Deposit Insurance and Liquidity,”Journal of Political Economy, Vol. 91 (June), pp. 401–19.
Diamond, Douglas W., and RaghuramG. Rajan, 2001, “Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking,”Journal of Political Economy, Vol. 109 (April), pp. 287–327.
Diamond, Douglas W., and RaghuramG. Rajan, 2002, “Banks, Short Term Debt and Financial Crises: Theory, Policy Implications and Applications,”CRSP Working Paper No. 518 (Center for Research in Security Prices, Graduate School of Business, University of Chicago).
Diamond, Peter A., 1965, “National Debt in a Neoclassical Growth Model,”The American Economic Review, Vol. 55 (December), pp. 1126–50.
Dodd, Randall, 2001, “The Role of Derivatives in the East Asian Financial Crisis,” Financial Policy Forum, The Derivatives Study Center. Available via the Internet: http://www.financialpolicy.org/DSCSPR1.PDF
Duisenberg, Wim F., 2001, “The Contribution of the Euro to Financial Stability,” in Globalization of Financial Markets and Financial Stability—Challenges for Europe (Baden-Baden, Germany: Nomos Verlagsgesellschaft).
Eatwell, John, and LanceTaylor, 2000, Global Finance at Risk: The Case for International Regulation (New York: The New Press).
Eatwell, John, and LanceTaylor, eds., 2002, International Capital Markets: Systems in Transition (Oxford: Oxford University Press).
European Central Bank, 1999, “Possible Effects of EMU on the EU Banking Systems in the Medium to Long Term,” (Frankfurt: European Central Bank).
European Commission, 2002a, “Study into the Methodologies for Prudential Supervision of Reinsurance with a View to the Possible Establishment of an EU Framework,” (Brussels).
European Commission, 2002b, “Study into the Methodologies to Assess the Overall Financial Position of an Insurance Undertaking from the Perspective of Prudential Supervision,” study performed by KPMG, (Brussels).
European Union Economic and Financial Committee, 2000, “Report on Financial Stability,” Brouwer Report (Brussels).
Evans, Owen, A. M.Leone, MartinGill, and PaulHilbers, 2000, “Macroeconomic Indicators of Financial System Soundness,” IMF Occasional Paper No. 192 (Washington: International Monetary Fund).
FDIC, 1997, An Examination of the Banking Crises of the 1980s and Early 1990s, Vol. 1, (Washington: Federal Deposit Insurance Corporation).
FDIC, 1998, Managing the Crisis: The FDIC and RTC Experience 1980–1994 (Washington: Federal Deposit Insurance Corporation).
Fell, J., 2004, “Organising Financial Stability Analysis,” in De Nederlandsche Bank Proceedings of the Symposium on Financial Stability: Policy Challenges in the Asian Era, Amsterdam, October.
Fell, J., and G.Schinasi, 2005, “Assessing Financial Stability: Exploring the Boundaries of Analysis,”National Institute Economic Review, No. 192 (April), pp. 102–117.
Fell, J., and G.Schinasi, 2005, “Assessing Financial Stability: Conceptual Boundaries and Challenges,” in Financial Stability Review (Frankfurt: European Central Bank). Available via the Internet: http://www.ecb.int/pub/pdf/other/financialstabilityreview200506en.pdf
Ferguson, Roger, 2002, “Should Financial Stability Be An Explicit Central Bank Objective?” (Washington: Federal Reserve Board).
Ferran, E., and C.Goodhart, eds., 2001, Regulating Financial Services and Markets in the 21st Century (Oxford: Hart).
Financial Services Authority, 2002, Cross-Sector Risk Transfer, discussion paper, (London).
FitchRatings, 2001, “Use of Insurance Policies as Credit Enhancements in Structured Finance,” Structured Finance Special Report, June18.
Flood, Merrill M., 1952, “Some Experimental Games,”Research Memorandum RM-789 (Santa Monica, California: Rand Corporation).
Folkerts-Landau, David, and Carl-JohanLindgren, 1998, Toward a Framework for Financial Stability, World Economic and Financial Surveys (Washington: International Monetary Fund).
Folkerts-Landau, David, and AlfredSteinherr, 1994, “The Wild Beast of Derivatives: To Be Chained Up, Fenced In or Tamed?”in The AMEX Bank Review Prize Essays: Finance and the International Economy, Vol. 8 (New York: Oxford University Press for American Express Bank).
Foot, Michael, 2003, “What is ‘Financial Stability’ and How Do We Get It?”The Roy Bridge Memorial Lecture, Financial Services Authority, United Kingdom, April3.
Fosler, Gail, 2004a, “Thinking About Risk,”Straight Talk, Vol. 15, No. 8 (New York: The Conference Board, September).
Fosler, Gail, 2004b, “Financial Stability and Systemic Risk,”Straight Talk, Vol. 15, No. 9 (New York: The Conference Board, October).
Freixas, Xavier, and Jean-CharlesRochet, 1997, Microeconomics of Banking (Cambridge, Massachusetts: MIT Press).
Freixas, Xavier, BrunoParigi, and Jean-CharlesRochet, 1999, “Systemic Risk, Interbank Relations and Liquidity Provision by the Central Bank,”CEPR Working Paper No. 2325 (London: Centre for Economic Policy Research).
Freixas, Xavier, CurzioGiannini, GlennHoggarth, and FaroukSoussa, 1999, “Lender of Last Resort: A Review of the Literature,”Financial Stability Review, Issue 7 (November), pp. 151–67.
Freixas, Xavier, CurzioGiannini, GlennHoggarth, and FaroukSoussa, 2000, “Lender of Last Resort: What Have We Learnt Since Bagehot?”Journal of Financial Services Research, Vol. 18 (October), pp. 63–87.
Fukao, Mitsuhiro, and Japan Center for Economic Research (JCER), eds., 2002, “The Life Insurance Crisis Will Continue,”(Seiho Kiki wa Owaranai, in Japanese), (Tokyo: Tokyo Keizai Shimposha).
Garber, P., 1998, “Derivatives in International Capital Flows,”NBER Working Paper No. 6623 (Cambridge, Massachusetts: National Bureau of Economic Research).
García-Herrero, Alicia, and P.del Rio, 2003, “Financial Stability and the Design of Monetary Policy,”Documento de Trabajo No. 0315, Banco de España, Madrid.
Gastineau, G. L., 1992, Swiss Bank Corporation Dictionary of Financial Risk Management (Chicago: Probus Publishing Company).
Geanakoplos, John, 1997, “Promises Promises,”in The Economy as an Evolving Complex System II, Conference proceedingsVolume XXVIIin Studies in the Sciences of Complexity, eds. W.Brian Arthur, StevenN. Durlauf, and DavidA. Lane (Reading, Massachusetts: Addison-Wesley).
Geithner, Timothy, 2004a, “Changes in the Structure of the U.S. Financial System and Implications for Systemic Risk,”remarks before the Conference on Systemic Financial Crises, Federal Reserve Bank of Chicago (October1, 2004). Available via the Internet: http://www.ny.frb.org/newsevents/speeches/2004/gei041001.html
Geithner, Timothy, 2004b, “Hedge Funds and Their Implications for the Financial System,”keynote address at the National Conference on the Securities Industry, New York (November17). Available via the Internet: http://www.ny.frb.org/newsevents/speeches/2004/gei041117.html
Goodhart, Charles, 1989, Money, Information and Uncertainty (Cambridge, Massachusetts: MIT Press, 2nd ed.).
Goodhart, Charles, 1995, “Price Stability and Financial Fragility,” in Financial Stability in a Changing Environment, ed. by K.Kawamoto, Z.Nakajima, and H.Taguchi (London: Macmillan).
Greenspan, Alan, 1998, “Risk Management in the Global Financial System,”remarks before the Annual Financial Markets Conference of the Federal Reserve Bank of Atlanta, Miami Beach, Florida, February27.
Greenspan, Alan, 1999, “Do Efficient Markets Mitigate Financial Crises?”speech before the 1999 Financial Markets Conference of the Federal Reserve Bank of Atlanta, Sea Island, Georgia, October19.
Greenspan, Alan, 2000, “Over-the-Counter Derivatives,”testimony before the Committee on Agriculture, Nutrition and Forestry, United States Senate, February10.
Greenspan, Alan, 2002, Testimony before the U.S. House of Representatives Committee on Financial Services, February27, 2002. Available via the Internet: http://www.federalreserve.gov/boarddocs/hh/2002/february/testimony.htm
Greenspan, Alan, 2005, “Risk Transfer and Financial Stability,”remarks to the Federal Reserve Bank of Chicago’s 41st Annual Conference on Bank Structure, Chicago, Illinois, May5.
Greenwood, Jeremy, and BoyanJovanovic, 1990, “Financial Development, Growth and the Distribution of Income,”Journal of Political Economy, Vol. 98 (October), pp. 1076–107.
Group of Ten, 2001, Consolidation in the Financial Sector (Basel: Bank for International Settlements).
Haldane, Andrew, 2001, “The Financial Stability Forum (FSF): Just Another Acronym?” in Regulating Financial Services and Markets in the 21st Century, ed. by E.Ferran and C.Goodhart (Oxford: Hart).
Haldane, Andrew, 2004, “Defining Monetary and Financial Stability” (unpublished; London: Bank of England).
Handbook of Credit Derivatives,1999, ed. by J. C.Francis, J. S.Frost, and G.Whittaker (New York: McGraw-Hill).
Hicks, SirJohn, 1935, “A Suggestion for Simplifying the Theory of Money,”Economica, Vol. 2 (February), pp. 1–19.
Hicks, SirJohn, 1967, Critical Essays on Monetary Theory (Oxford: Clarendon Press).
Hill, Andrew, and GarySilverman, 2002, “JP Morgan and Insurers Go To Court Over Enron: Dispute About Surety Bonds Raises Doubts About How Banks Transfer Their Credit Risks,” Financial Times (London), January15, p. 19.
Hill, Andrew, J.Labate, C.Pretzlik, G.Silverman, and P. T.Larsen, 2002, “SEC Investigates Credit Risk of US Bank ‘Loans’: Exposure of JP Morgan and Citigroup to Enron Raises Fears Shareholders Were Misled,” Financial Times (London), January 16, p. 19.
Hills, Bob, and DavidRule, 1999, “Counterparty Credit Risk in Wholesale Payment and Settlement Systems,”Bank of England Financial Stability Review, Issue 7 (November), pp. 98–114.
Hills, Bob, DavidRule, SarahParkinson, and ChrisYoung, 1999, “Central Counterparty Clearing Houses and Financial Stability,”Bank of England Financial Stability Review, Issue 6 (June), pp. 122–34.
Hoelscher, David, and MarcQuintyn, 2003, Managing Systemic Banking Crises (Washington: International Monetary Fund).
Hoggarth, Glenn, and VictoriaSaporta, 2001, “Costs of Banking System Instability: Some Empirical Evidence,”Bank of England Financial Stability Review, Issue 10 (June), pp. 148–65.
Hoggarth, G., and J.Whitley, 2003, “Assessing the Strength of UK Banks through Macroeconomic Stress Tests,”Bank of England Financial Stability Review, Issue 14 (June), pp. 91–103.
Houben, Aerdt, JanKakes, and GarrySchinasi, 2004, “Towards a Framework for Safeguarding Financial Stability,”IMF Working Paper WP/04/101 (Washington: International Monetary Fund) and DNB Occasional PaperVol. 2 (No. 1).
Hutchison, Michael, and IlanNoy, 2002, “How Bad Are Twins? Output Costs of Currency and Banking Crises,”Pacific Basin Working Paper Series No. PB02–02, (San Francisco: Federal Reserve Bank of San Francisco).
Ineichen, A. M., 2001, “The Search For Alpha Continues: Do Fund of Hedge Funds Managers Add Value?”UBS Warburg research note (London).
Institutional Investor, 2004, January.
International Association of Insurance Supervisors (IAIS), 2000, Reinsurance and Reinsurers: Relevant Issues for Establishing General Supervisory Principles, Standards and Practices (Working Group on Reinsurance, Basel).
International Association of Insurance Supervisors (IAIS), 2002a, Principles on Minimum Requirements for Supervision of Reinsurers (Basel).
International Association of Insurance Supervisors (IAIS), 2002b, Supervisory Standard on the Evaluation of the Reinsurance Cover of Primary Insurers and the Security of their Reinsurers (Basel).
International Association of Insurance Supervisors (IAIS), 2003, Insurance Core Principles and Methodology (Basel).
International Monetary Fund, 1995, International Capital Markets: Developments, Prospects, and Key Policy Issues, World Economic and Financial Surveys (Washington).
International Monetary Fund, 1996, International Capital Markets: Developments, Prospects, and Key Policy Issues, World Economic and Financial Surveys (Washington).
International Monetary Fund, 1998a, International Capital Markets: Developments, Prospects, and Key Policy Issues, World Economic and Financial Surveys, Chapter V (Washington).
International Monetary Fund, 1998b, World Economic Outlook and International Capital Markets: Interim Assessment, World Economic and Financial Surveys (Washington).
International Monetary Fund, 1999, International Capital Markets: Developments, Prospects, and Key Policy Issues (Washington).
International Monetary Fund, 2000, International Capital Markets: Developments, Prospects, and Key Policy Issues (Washington).
International Monetary Fund, 2002a, “Selected Topic: The Role of Financial Derivatives in Emerging Markets” Global Financial Stability Report, (December), 54–70.
International Monetary Fund, 2002b, “Stability Implications of Global Financial Market Conditions,” Global Financial Stability Report (March), 23–47.
International Monetary Fund, 2002c, “The Financial Market Activities of Insurance and Reinsurance Companies,” Global Financial Stability Report (June), 30–47.
International Monetary Fund, 2004a, Compilation Guide on Financial Soundness Indicators, Washington.
International Monetary Fund, 2004b, “Global Financial Market Developments,” Global Financial Stability Report (September), 8–80.
International Monetary Fund, and World Bank, 2001, “Experience with the Insurance Core Principles Assessments Under the Financial Sector Assessment Program,” prepared by the staffs of the IMF and the World Bank (Washington).
International Monetary Fund, 2003, Analytical Tools of the Financial Sector Assessment Program (Washington).
Jevons, W. S., 1871, The Theory of Political Economy (London: Penguin, Reprint 1970).
Joint Forum, 2001a, Core Principles: Cross-Sectoral Comparison (Basel: Bank for International Settlements).
Joint Forum, 2001b, Risk Management Practices and Regulatory Capital, Cross-Sectoral Comparison (Basel: Bank for International Settlements).
Joint Forum, 2004, “Financial Disclosure in the Banking, Insurance and Securities Sectors: Issues and Analysis” (Basel: Bank for International Settlements).
Joint Forum, 2005, “Credit Risk Transfers” (Basel: Bank for International Settlements).
JPMorgan, 2001, The Insurance Industry and FA/GIC Bonds (New York).
JPMorgan/Risk Management, 2001, Guide to Risk Management (London: Risk Waters Group).
Kawamoto, K., Z.Nakajima, and H.Taguchi, eds., 1995, Financial Stability in a Changing Environment (London: Macmillan).
Keynes, John Maynard, 1930a, A Treatise on Money, Vol. I (London: Macmillan, Reprint 1958).
Keynes, John Maynard, 1930b, A Treatise on Money, Vol. II (London: Macmillan, Reprint 1960).
Keynes, John Maynard, 1936, The General Theory of Employment, Interest and Money (London: Macmillan, Reprint 1957).
Kindleberger, Charles, 1993, A Financial History of Western Europe (Oxford: Oxford University Press, 2nd ed.).
Kindleberger, Charles, 1996, Manias, Panics and Crashes (Cambridge: Cambridge University Press, 3rd ed.).
Kirman, Alan P., 1997, “The Economy as an Interactive System,”in The Economy as an Evolving Complex System II, Conference proceedingsVolume XXVIIin Studies in the Sciences of Complexity, eds. W.Brian Arthur, StevenN. Durlauf, and DavidA. Lane (Reading, Massachusetts: Addison-Wesley), pp. 491–532.
Kiyotaki, Nobuhiro, and RandallWright, 1993, “A Contribution to the Pure Theory of Money,”Journal of Economic Theory, Vol. 53 (April), pp. 215–35.
Knight, Frank H., 1921, Risk, Uncertainty, and Profit (Cambridge: The Riverside Press).
Kochan, Nick, 2002, “Enron Fallout: Why Insurers Fail Banks,” The Banker (March), London, pp. 16–19.
Kocherlakota, Narayana, 1998, “Money is Memory,”Journal of Economic Theory, Vol. 81 (August), pp. 232–51.
Kregel, J. A., 1998, “Derivatives and Global Capital Flows: Applications to Asia,”Cambridge Journal of Economics, Vol. 22 (November), pp. 677–92.
Kroszner, Randall S., 1999, “Can the Financial Markets Privately Regulate Risk? The Development of Derivatives Clearinghouses and Recent Over-the-Counter Innovations,”Journal of Money, Credit and Banking, Vol. 31 (August, part 2), pp. 596–623.
Large, Sir Andrew, 2003, “Financial Stability: Maintaining Confidence in a Complex World,”Bank of England Financial Stability Review, Issue 15 (December), pp. 170–4.
Leahy, Michael., S.Schich, G.Wehinger, F.Pelgrin, and T.Thorgeirsson, 2001, “Contributions of Financial Systems to Growth in OECD Countries,”OECD Working Paper No. 280 (Paris: Organisation for Economic Co-operation and Development).
Leijonhufvud, Axel, 1997, “Macroeconomics and Complexity: Inflation Theory,”in The Economy as an Evolving Complex System II, Conference proceedingsVolume XXVIIin Studies in the Sciences of Complexity, ed. by W. BrianArthur, StevenN. Durlauf, and DavidA. Lane (Reading, Massachusetts: Addison-Wesley), pp. 321–336.
Levine, Ross, 1999, “Law, Finance and Economic Growth,”Journal of Financial Intermediation, Vol. 8 (Issue 1–2), pp. 8–35.
Levine, Ross, 2003, “More on Finance and Growth: More Finance, More Growth?”The Federal Reserve Bank of St. Louis, Review, Vol. 85 (July/August), pp. 31–46.
Lindgren, Carl-Johan, GillianGarcia, and MatthewSaal, 1996, Bank Soundness and Macroeconomic Policy (Washington: International Monetary Fund).
Llewellyn, David T., 2001, “A Regulatory Regime for Financial Stability,”Working Paper No. 48 (Vienna: Oesterreichische Nationalbank).
Maier-Rigaud, Frank P., and JoseApesteguia, 2004, “The Role of Rivalry: Public Goods versus Common-Pool Resources,”MPI Collective Goods Preprint 2004/2 (Bloomington, Indiana: Max Planck Institute for Research on Collective Goods, Indiana University).
Malz, Allan M., 1995, “Currency Option Markets and Exchange Rates: A Case Study of the U.S. Dollar in March 1995,”Current Issues in Economics and Finance, Vol. 1 (July), pp. 1–6.
Mandelbrot, Benoit B., 1997, Fractals and Scaling in Finance: Discontinuity, Concentration, Risk, SelectaVolume E (New York: Springer Verlag).
Mathieson, Donald J., JorgeE. Roldos, RamanaRamaswamy, and AnnaIlyina, 2004, Emerging Local Securities and Derivatives Markets, World Economic and Financial Surveys (Washington: International Monetary Fund), pp. 69–90.
Minsky, H. M., 1977, “The Financial Stability Hypothesis: An Interpretation of Keynes and an Alternative to ‘Standard’ Theory,”Nebraska Journal of Economics and Business, Vol. 16 (Winter), pp. 5–16.
Minsky, H. M., 1982, Inflation, Recession and Economic Policy (Sussex: MIT Press Wheatsheaf).
Mishkin, Frederick, 1999, “Global Financial Instability: Framework, Events, Issues,”Journal of Economic Perspectives, Vol. 13 (Fall), pp. 3–20.
National Bank of Belgium, 2002, Financial Stability Review, No. 1, Brussels.
Neely, C. J., 2004, “The Federal Reserve Responds to Crises: September 11th Was Not the First,”Federal Reserve Bank of St. Louis Review, Vol. 86 (March/April), pp. 27–42.
Norwegian Central Bank, 2003, Financial Stability Review, Vol. 1, Oslo. Available via the Internet: http://www.norges-bank.no/english/financial_stability/
Nystedt, Jens, 2004, “Derivative Market Competition: OTC Markets versus Organized Derivative Exchanges,”IMF Working Paper WP/04/61 (Washington: International Monetary Fund).
Nystedt, Jens, 2003, Institutional Investors Statistical Yearbook, 1992–2001 (Paris).
Nystedt, Jens, various years, Bank Profitability, Financial Statements of Banks (Paris).
Olson, Mancur, 1965, The Logic of Collective Action (Cambridge, Massachusetts: Harvard University Press).
Oosterloo, Sander, and Jakobde Haan, 2003, A Survey of Institutional Frameworks for Financial Stability, De Nederlandsche Bank Occasional Studies, Volume 1, Number 4 (Amsterdam: De Nederlandsche Bank), pp. 10–16.
Organisation for Economic Co-operation and Development (OECD), 2002, “Risk Transfer Mechanisms,” Committee on Financial Markets, DAFFE/CMF(2002)5 (Paris).
Padoa-Schioppa, Tommaso, 1999, “EMU and Banking Supervision,” lecture given to the London School of Economics, February24.
Padoa-Schioppa, Tommaso, 2003, “Central Banks and Financial Stability: Exploring the Land in Between,”in The Transformation of the European Financial System, ed. by VitorGaspar, P.Hartmann, and O.Sleijpen (Frankfurt: European Central Bank).
Padoa-Schioppa, Tommaso, 2004, Regulating Finance: Balancing Freedom and Risk (Oxford: Oxford University Press).
Paulos, John Allen, 2003, A Mathematician Plays the Stock Market (New York: Basic Books).
Persson, M., and M.Blåvarg, 2003, “The Use of Market Indicators in Financial Stability Analysis,” Economic Review, Sveriges Riksbank, pp. 5–28.
Poundstone, William, 1992, Prisoner’s Dilemma (New York: Doubleday).
Prati, Alessandro, and GarryJ. Schinasi, 1997, “European Economic and Monetary Union and International Capital Markets: Structural Implications and Risks,”IMF Working Paper 97/62 (Washington: International Monetary Fund).
Prati, Alessandro, and GarryJ. Schinasi, 1999a, “Financial Stability in European Economic and Monetary Union,”Princeton Studies in International Economics No. 86 (Princeton, New Jersey: Princeton University).
Prati, Alessandro, and GarryJ. Schinasi, 1999b, “Will the European Central Bank Be the Lender of Last Resort in EMU?”paper prepared for 21st Colloquium of the Societe Universitaire Europeenne de Recherches Financieres (SUERF), “The Euro: A Challenge and Opportunity for Financial Markets,”Frankfurt, Germany, October15–17.
Procter, Rob, EspenNordhaus, and JonHocking, 2002, “Downgrading on Embedded Concerns,”Morgan Stanley Equity Research: European Insurance (New York).
Rajan, Raghuram G., 1997, “The Past and Future of Commercial Banking Viewed through an Incomplete Contract Lens,”Journal of Money, Credit and Banking, Vol. 30 (August), pp. 524–50.
Rajan, Raghuram G., and LuigiZingales, 2003, Saving Capitalism from the Capitalists (New York: Crown Business).
Ranciere, R., 2002, “Credit Derivatives in Emerging Markets,” (unpublished, New York: New York University, Stern School of Business).
Sahajwala, R., and P.van den Berg, 2000, “Supervisory Risk Assessment and Early Warning Systems,”Basel Committee on Banking Supervision Working Paper No. 4 (Basel: Bank for International Settlements).
Samuelson, Paul A., 1958, “An Exact Consumption-Loan Model of Interest With or Without the Social Contrivance of Money,”Journal of Political Economy, Vol. 6 (December), pp. 467–82.
Sandler, Todd, 1992, Collective Action: Theory and Applications (Ann Arbor: The University of Michigan Press).
Santa Fe Institute, 1988, The Economy as an Evolving Complex System, Conference ProceedingsVolume Vin Studies in the Sciences of Complexity, ed. by PhilipW. Anderson, KennethJ. Arrow, and DavidPines (Santa Fe, New Mexico: Addison-Wesley).
Santa Fe Institute, 1988, The Economy as an Evolving Complex System, Conference ProceedingsVolume Vin Studies in the Sciences of Complexity, ed. by PhilipW. Anderson, KennethJ. Arrow, and DavidPines1994, Complexity: Metaphors, Models, and Reality, Conference Proceedings Volume in the Studies in the Sciences of Complexity, ed. by GeorgeCowan, DavidPines, and DavidMeltzer (Cambridge, Massachusetts: Perseus Books).
Santa Fe Institute, 1997, The Economy as an Evolving Complex System II, Conference ProceedingsVolume XXVIIin Studies in the Sciences of Complexity, ed. by W. BrianArthur, StevenN. Durlauf, and DavidA. Lane (Reading, Massachusetts: Addison-Wesley).
Schinasi, Garry J., 1992, “Balance Sheet Constraints and the Sluggishness of the Current Recovery,”Annex I, World Economic Outlook, World Economic and Financial Surveys (Washington: International Monetary Fund).
Schinasi, Garry J., 1994, “Asset Price Inflation, Monetary Policy, and the Business Cycle,” IMF Paper on Policy Analysis and Assessment 94/6 (Washington: International Monetary Fund).
Schinasi, Garry J., 1995, “Asset Prices, Monetary Policy, and the Business Cycle,”Finance and Development, Vol. 32 (June).
Schinasi, Garry J., 2003, “Responsibility of Central Banks for Stability in Financial Markets,”IMF Working Paper 03/121 (Washington: International Monetary Fund, June); also published as Chapter 17 in Current Developments in Monetary and Financial Law—Volume 2, 2003 (Washington: International Monetary Fund).
Schinasi, Garry J., 2004a, “Defining Financial Stability,”IMF Working Paper WP/04/187 (Washington: International Monetary Fund).
Schinasi, Garry J., 2004b, “Private Finance and Public Policy,”IMF Working Paper WP/04/120 (Washington: International Monetary Fund).
Schinasi, Garry J., and MonicaHargraves, 1992, “Asset Price Deflation, Balance Sheet Adjustment, and Financial Fragility,”Annex I, World Economic Outlook, World Economic and Financial Surveys (Washington: International Monetary Fund).
Schinasi, Garry J., and MonicaHargraves, 1993a, “‘Boom and Bust’ in Asset Markets in the 1980s,”Staff Studies for the World Economic Outlook, World Economic and Financial Surveys (Washington: International Monetary Fund).
Schinasi, Garry J., and MonicaHargraves, 1993b, “Monetary Policy, Financial Liberalization, and Asset Price Inflation,”Annex I, World Economic Outlook, World Economic and Financial Surveys (Washington: International Monetary Fund).
Schinasi, Garry J., and R.Todd Smith, 2000, “Portfolio Diversification, Leverage, and Financial Contagion,”IMF Staff Papers, Vol. 47 (December), pp. 159–176; also IMF Working Paper 99/136 (Washington: International Monetary Fund).
Schinasi, Garry J., BurkhardDrees, and WilliamLee, 1999, “Managing Global Finance and Risk,”Finance & Development, Vol. 36 (December), pp. 38–41.
Schinasi, Garry J., MonicaHargraves, and StevenWeisbrod, 1993, “Asset Price Inflation in the 1980s: A Flow of Funds Perspective,”IMF Working Paper 93/77 (Washington: International Monetary Fund).
Schinasi, Garry J., SeanCraig, BurkhardDrees, and CharlesKramer, 2000, “Modern Banking and OTC Derivatives Markets: The Transformation of Global Finance and its Implications for Systemic Risk,” IMF Occasional Paper No. 203 (Washington: International Monetary Fund).
Schumpeter, J., 1934, The Theory of Economic Development (Cambridge: Harvard University Press).
Schwartz, Anna J., 1986, “Real and Pseudo-Financial Crises,” in Financial Crises and the World Banking System, ed. by ForrestCapie and GeoffreyE. Woods (New York: St Martin’s).
Shubik, Martin, 1997, “Time and Money,”in The Economy as an Evolving Complex System II, Conference proceedingsVolume XXVIIin Studies in the Sciences of Complexity, ed. by W.BrianArthur, StevenN.Durlauf, and DavidA. Lane (Reading, Massachusetts: Addison-Wesley), pp. 263–84.
Shubik, Martin, 1999, Theory of Money and Financial Institutions (Cambridge, Massachusetts: MIT Press).
Shubik, Martin, 2001, “On Understanding Money,”World Economics, Vol. 2 (January–March), pp. 95–120.
Smith, R. Todd, and H.van Egteren, 2005, “Interest Rate Smoothing and Financial Stability,”Review of Financial Economics,Vol. 14, pp. 147–171.
Sornette, Didier, 2003, Why Stock Markets Crash: Critical Events in Complex Financial Systems (Oxford and Princeton: Princeton University Press).
Steinherr, Alfred, 1998, Derivatives:The Wild Beast of Finance (New York: Wiley & Sons).
Stiglitz, Joseph E., 2000, Economics of the Public Sector (New York: W. W. Norton and Company).
Stock, James H., and MarkW. Watson, 2003, “Has the Business Cycle Changed? Evidence and Explanations,” paper presented at the Federal Reserve Bank of Kansas City symposium, “Monetary Policy and Uncertainty,” Jackson Hole, Wyoming, August28–30.
Summer, Martin, 2003, “Banking Regulation and Systemic Risk,”Open Economies Review,Vol. 14 (January), pp. 43–70.
Sveriges Riksbank, 2003, Financial Stability Report, No. 2, Stockholm.
Sveriges Riksbank2004, Financial Stability Report, No. 1, Stockholm.
SwissRe, 2001, “Profitability of the Non-Life Insurance Industry: It’s Back-to-Basics Time,” sigma No. 5/2001 (Zurich: Swiss Reinsurance Company).
Thaler, Richard H., 1992, The Winner’s Curse: Paradoxes and Anomalies of Economic Life (New York: Maxwell Macmillan International).
Thom, Rene, 1972, Structural Stability and Morphogenesis: An Outline of a General Theory of Models,trans. byD. H.Fowler (Reading, Massachusetts: W. A. Benjamin, Inc.).
Thornton, Henry, 1802, An Enquiry into the Nature and Effects of Paper Credit of Great Britain (New York: Augustus Kelley, Reprint1978).
Tietmeyer, Hans, 1999, remarks at the conference of the Center for Financial Studies“Systemic Risk and Lender of Last Resort,”Frankfurt, June.
Tobin, James, 1980, “Discussion by James Tobin,” in Models of Monetary Economics,ed. by J.Kareken and NeilWallace (Minneapolis: Federal Reserve Bank of Minneapolis).
Tobin, James, 1992, “Money as a Social Institution and Public Good,” in The New Palgrave Dictionary of Money and Finance,ed. by J.Eatwell, M.Milgate, and P.Newman (London: Macmillan).
Truman, Edwin, 2003, Inflation Targeting in the World Economy (Washington: Institute for International Economics).
Tucker, Paul M. W., 2005, “Where Are the Risks,” remarks at the Euromoney Global Borrowers and Investors Forum (London, June23). Available on the Internet at: http://www.bankofengland.co.uk/publications/speeches/2005/speech251.pdf
Tucker, Paul M. W., 2004a, “Managing the Central Bank’s Balance Sheet: Where Monetary Policy Meets Financial Stability,” Lecture to mark the fifteenth anniversary of Lombard Street Research (London: Bank of England, July2004). Available on the Internet at: http://www.bankofengland.co.uk/publications/speeches/2004/speech225.pdf
Tucker, Paul M. W., 2004b, Keynote Speech at the National Association of Pension Funds Annual Investment Conference in Edinburgh (London: Bank of England, March19).Available on the Internet at: http://www.bankofengland.co.uk/publications/speeches/2004/speech216.pdf
Tucker, Paul M. W., , 2004a, “Managing the Central Bank’s Balance Sheet: Where Monetary Policy Meets Financial Stability,”Lecture to mark the fifteenth anniversary of Lombard Street Research (London: Bank of England, July2004). Available on the Internet at: http://www.bankofengland.co.uk/publications/speeches/2004/speech225.pdf
Tucker, Paul M. W., , 2004b, Keynote Speech at the National Association of Pension Funds Annual Investment Conference in Edinburgh (London: Bank of England, March19). Available on the Internet at: http://www.bankofengland.co.uk/publications/speeches/2004/speech216.pdf
United States, Board of Governors of the Federal Reserve System, 1999, “Using Subordinated Debt as an Instrument of Market Discipline,” Staff Studies No. 172 (Washington).
United States, Board of Governors of the Federal Reserve System, 2000, “Improving Public Disclosure in Banking,” Staff Study 173 (Washington: Federal Reserve System).
United States, Commodity Futures Trading Commision, 1999, Regulation of Over-the-Counter Derivatives Transactions (Washington).
United States, Comptroller of the Currency, 2005, “OCC Bank Derivatives Report–Fourth Quarter 2004,”Available via the Internet: www.occ.gov.
United States Joint Senate Committees on Agriculture, Nutrition, and Forestry and Banking, Housing, and Urban Affairs, 2000, Testimony by Federal Reserve Chairman Greenspan, SEC Chairman Levitt, and Treasury Secretary Summers, June21. Available via the Internet: http://agriculture.sennate.gov/Hearings/Hearings_2000/June_21__2000/june_21__2000.htm
United States, President’s Working Group on Financial Markets, 1999a, “Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management,” Report of the President’s Working Group on Financial Markets (Department of the Treasury, Board of Governors of the Federal Reserve System, Securities and Exchange Commission, Commodity Futures Trading Commission) (Washington).
United States, President’s Working Group on Financial Markets, 1999b, “Over-the-Counter Derivatives Markets and the Commodity Exchange Act,” Report of the President’s Working Group on Financial Markets (Department of the Treasury, Board of Governors of the Federal Reserve System, Securities and Exchange Commission, Commodity Futures Trading Commission) (Washington).
Van derZwet, 2003, “The Blurring of Distinctions between Financial Sectors: Fact or Fiction?” Occasional Studies No. 2 (Amsterdam: De Nederlandsche Bank).
Van Hedge Fund Advisors LLC, 2005, “Size of the Hedge Fund Universe.” Available via the Internet: http://www.hedgefund.com/abouthfs/universe/universe.htm
Volcker, Paul A., 1984, “The Federal Reserve Position on Restructuring of Financial Regulation Responsibilities,”Federal Reserve Bulletin, Vol. 70 (July), pp. 547–57.
Volcker, Paul A., 1998, “Emerging Economies in a Sea of Global Finance,” The Charles Rostov Lecture at the Paul H. Nitze School of Advanced International Studies, Johns Hopkins University (Washington DC: April9). Available via the Internet: http://www.house.gov/jec/hearings/imf2/volker.htm
Volcker, Paul A., 1999, “The Implications of Globalism is Globalism,” The Joseph I. Lubin Memorial Lecture, Stern School of Business (New York: April20). Available via the Internet: http://www.trilateral.org/membship/membtxts/pv/990420.htm
Volcker, Paul A., 2002, “Accounting, Accountants, and Accountability in an Integrated World Economy,” Remarks to the World Congress of Accountants (Hong Kong: November19). Available via Internet: http://www.iasb.org/uploaded_files/documents/8–128–021119-pav.pdf
Wellink, Nout, 2002, “Central Banks as Guardians of Financial Stability,” speech at the seminar “Current Issues in Central Banking,”Oranjestad, Aruba, November14.
White, William, 2003, “Are Changes in Financial Structures Extending Safety Nets?”in Macroeconomics, Monetary Policy and Financial Stability: A Festschrift for Charles Freedman, BIS Working Papers No. 145 (Basel: Bank for International Settlements).
World Bank, 1999, “Processing the Economy’s Financial Information”, in World Development Report 1998–99 (Washington: World Bank).
Worrell, DeLisle, 2004, “Quantitative Assessment of the Financial Sector: An Integrated Approach,”IMF Working Paper WP/04/153 (Washington: International Monetary Fund).
absorptive capacity, 123
adverse selection, 54
alternative risk transfer (ART) market, 257, 259, 268
American Express, 233, 243
Argentina: debt exchange, 235;
default and devaluation (2001), 201
Asian crisis (1997–98), 199–200
assessment process: confidence intervals, 127;
design and implementation challenges, 129–33;
measurement and modeling, 122–29;
partial equilibrium analysis, 121;
practical challenges, 118–28
asset-price bubbles, 72, 129
asset-price misalignment, 72
assets: growth, 7;
institutional investors, 162–63
Bank for International Settlements and Financial Stability Forum, financial stability definition, 94
Bank of Canada, financial stability definition, 94
Bank of England, 134, 146–48;
lender of last resort, 144;
bank-based systems, 174
banking policy view, 140
banking supervision, 140–42
bankruptcy: credit derivatives market, 242;
legal framework for, 142, 143. See also Enron
banks and banking: deposits, commercial banks, 160;
loans, commercial banks, 161;
OTC derivatives markets and, 184–95;
solvency, 123, 125. See also central banks
Barings plc, 147–48
barrier options, 277;
barter, 30, 33, 78
Basel Accord, 133, 206
Basel Committee, 115
benefits: modern finance, 151–52;
private vs. social, 47, 69
corporate and foreign, 252;
cross-border transactions, 10, 154
book value, 277
boundaries, measurement, 124
Bundesbank. See Deutsche Bundesbank
insurance companies, 266–68;
non-traditional sources, 240–41;
risk and, 263
catastrophic risk (Cat) bonds, 257, 259
central banks: crisis resolution and, 142–43;
effective execution, 139–43;
evolving issues, 144–47;
prevention and, 140–42;
role, 134–49. See also banks and banking
modern finance, 151–52;
national and global, 271–76
changes, forecasting, 90–91
Chant, John, financial stability definition, 94
cherry picking, 277
claims, insurance, 248, 256
clearing and settlement, 277
clearinghouse, 203–204, 223–24, 277–78
closeout: netting, 234, 278;
procedures, 215–16, 224, 278
collateralized debt obligation (CDO), 233, 235, 243, 268, 278
Columbia University, financial stability definition, 96
Commodity Futures Trading Commission (CFTC), 201, 217, 218–19
common good. See public good
common-pool resource, 56
competition: dynamic, 175–76;
complexity, 8, 89–91, 165
conglomerates, 7, 170
consolidation, 160, 165
contracts: exchange-traded, 195–203;
OTC derivatives, 219
cost: estimates, 127–29;
marginal cost, private vs. social, 47, 70
Counterparty Risk Management Policy Group II, 207
credit, 164, 167;
change in value, 187;
default swaps, 234–36;
demand for, 67;
OTC derivatives, 209–10;
rating agencies, insurers and, 263;
risk, 185, 187, 279
credit derivatives market, 278;
corporate downgrades (2005), 235;
key characteristics, 230;
leverage of, 240;
market size and structure, 229;
OTC derivatives and, 231;
slowdown (2001–02), 232–35
creditor stay exemption, 278–79
credit risk transfer vehicles, 274;
industry challenges, 238–42;
market for, 228–44;
market tests, 232–38;
retail investors and, 242–44
crises, 72, 138;
crisis resolution, 144;
central bank and, 142–43
Crockett, Andrew, financial stability definition, 94
cross-border transactions, 164;
bonds and equities, 10, 154;
OTC derivatives markets, 210–11
cross-currency swap, 279
carry trade, 279;
option, 196–97, 279
data, financial stability, 129
De Nederlandsche Bank, financial stability definition, 97
debt ratios, 125
decentralization, OTC derivatives, 205
default, risk, 187
demand, private vs. social, 68–69
markets, 160. See also over-the-counter derivatives
Derivatives Policy Group, 207
Deutsche Bundesbank, 135, 176;
financial stability definition, 94
developing country market, 16
disclosure, 168–69, 276;
insurance companies, 263–64;
OTC derivatives, 224–25
disequilibrium, stable, 70–71
disturbances, degree of, 113
diversification of banking, 160
dollar-yen market, OTC currency options and, 196–97
dot-com bubble, 171, 177
“double coincidence of wants,” 42, 79
down-and-out call (put) option, 280
Duisenberg, Wim, financial stability definition, 95
economic efficiency, 47, 67–69
economic processes, intertemporal facilitation, 36–37
economic resources, allocation, 36
economic value, 172
efficiency, 19, 67–69, 172;
economic or financial, 69–71;
loss of, 66;
stability and, 101–102
emerging markets, 16, 172, 178;
credit default swaps, 235;
OTC derivatives, 191, 194–95, 198–201
end users, global financial markets, 164
endogenous threats, 87–88, 106
Enron, 233–37, 243, 265, 274
equities: cross-border transactions, 154;
international issues, 156–57
equity markets, 260;
Hong Kong, 148–49
equity swap, 280
European Central Bank (ECB), 135, 145;
financial stability and, 144;
financial stability definition, 95, 96
European financial system, 101–102
European Monetary Union, 146
European System of Central Banks (ESCB), 145;
exchange markets: derivative financial instruments, 12;
finance vs., 32;
OTC derivatives markets vs., 195–208
exit strategies, 143
exogenous risk, 106, 109–10
externalities, 48–50, 57–58, 88;
legal tender, 55;
facilitation of economic progress, 83–84
Federal Reserve Bank of New York, 182–83
Ferguson, Roger, financial stability definition, 95
fiat money, 23–24, 29–31, 32, 34, 78;
17th century, 59;
public good, 55–58. See also money
finality of payment, 29, 137, 139
finance, 24, 57, 58;
benefits, 28, 79;
defined, 27–28, 33;
essence of, 32–34;
exchange vs., 32;
improper performance, 28–29;
money and, 27–35, 79;
private and social economic benefits, 35–42;
strengths and weaknesses, 78–80;
temporary exchange of services, 33
financial aggregates: change, 4–5;
composition (1970 vs. 2000), 6;
financial architectures, 9
financial deepening, 3, 6–7
financial markets: insurance and, 249, 255–56;
Financial Sector Assessment Program (FSAP), 126
financial soundness indicators, IMF’s core and encouraged, 112
Foot, Michael, financial stability definition, 95
foreign-exchange forward, 280
forward contract, 280
forward rate agreement (FRA), 280
fragility, 39–40, 72;
OTC derivatives, 185, 208–12
framework, analytical, 98–133;
defining and operationalizing, 102–18;
development, 2–3, 276;
illustration, 104, 106;
meaning of, 73–74;
need for, 9–14;
global financial market, 164;
globalization, 151, 153–80, 272;
international financial system and, 154–65;
market dynamics and, 169–73
Gramm-Leach-Bliley Act, 144
Great Depression, 16
Group of 30, 207
Group of Seven, 168
Group of Ten, 137, 168, 176, 179
hedging, 240, 242–43, 269, 281
Herstatt risk, 115
Hollywood Funding transactions (2001), 265
Hong Kong equity market, 148–49
Hong Kong Monetary Authority (HKMA), 148–49
hybrid entities, 160
imbalances, analytical and measurement tools, 113;
IMF financial soundness indicators, core and encouraged, 112
industry: credit risk transfer vehicles, 238–42;
employment and production, 35
asymmetries, 209, 211, 221;
crisis resolution, 118–119;
disclosure coordination, 224–25;
gathering and monitoring, 105–106, 118;
incomplete, 49, 53–54;
insurers and reinsurers, 270;
lender of last resort, 145;
OTC derivatives, 209,211,213, 221;
credit risk transfers, 241;
OTC derivatives market, 212–17, 219–21;
insolvent institutions, 143;
illiquid vs., 144
intermittent with inefficiency, 72;
OTC derivatives, 211;
range of, 89;
stability vs., 91–93
institutions, 40–42, 81, 170;
blurring of distinctions, 160;
difficulties with, 104;
risks in, 108
insurance, 151–52, 246–60, 275;
asset holdings, 162, 246–48;
balance sheet assets, 253;
claims, 248, 256;
financial contracts and legal risks, 264–66;
financial efficiency and stability, 260–68;
financial securities, 249;
global industry results, 255;
loss ratios, 250, 258;
systemic financial problems and, 267–68;
systemic implications, 245–70.
See also reinsurance
insurance, life, 246–47;
premium growth rates, 256
insurance, nonlife, 253–54;
integration, 7–8, 155
credit risk transfers, 244
International Association of Insurance Supervisors (IAIS), 262, 264
International Capital Markets, IMF (1999), 142
international cooperation and coordination, 276
International Swaps and Derivatives Association (ISDA), 207, 234;
See also globalization
investment companies, assets, 162
credit risk transfers and, 242–44;
total assets, 163
Joint Forum, 262
JP Morgan Chase, 234–35, 265, 274
knock-in options, 281
knockout options, 197, 281
Lamfalussy Standards, 115, 133
Large, Andrew, financial stability definition, 96
legal and regulatory environment, 61, 64–65;
legal risk, 281;
financial insurance contracts, 264–66;
OTC derivatives, 217;
legal tender. See fiat money;
lender of last resort, central bank as, 143–45
leverage, 39–40, 281;
insurance companies, 266–67
liquidity, 18, 23–24, 38–40, 50, 87–88, 119, 125, 137, 170–72, 272, 281;
OTC derivatives, 185, 209–10, 213–15;
“lock-up” rules, 242–43
Long-Term Capital Management (LTCM), 127, 141, 144, 148, 176, 182,192–95, 212–13, 220–21, 233–34, 273–74;
global capital market and, 192–94
loss given default, 281
Maastricht Treaty, 146
policy objectives, 122–23
macro-prudential analysis, 111
market-based systems, 174
market discipline, 140–42, 167–69, 172, 173, 175, 176, 179;
OTC derivatives, 206–208, 219–21
market maker, 282
market-making, 170, 172
market-oriented forms of finance, 160
markets, 40–42, 80;
adverse dynamics, 182;
dynamics, 165, 169, 171–72;
failure, 49, 60;
imperfections, 16–17, 19, 47–55, 59–60, 66;
incomplete, 49, 54–55;
market surveillance, 140, 141–42;
OTC derivatives, 202, 204–208, 213–15;
risk, 108–109, 167–68, 282;
structure, 182–83, 202, 204–208;
turbulence and crises, 13
master agreement, 282
material disclosure provisions, 266
measurement and modeling, 122–28, 132–33;
merchant banking group, 147–48
mergers and acquisitions, 8;
Mexican crisis (1994), 198–99
micro-prudential indicators, 111
Minsky (1977) financial instability hypothesis, 124
Mishkin, Frederick, financial stability definition, 96
monetary aggregate, 138
monetary policy, 137;
monetary stability, 31, 85;
financial stability and, 138. See also stability
monetary system, 81
money: finance and, 27–34, 79;
intrinsic value, 30;
supply, 138–39. See also fiat money
monitoring, 105–106, 113, 132–33;
OTC derivatives, 208
moral hazard, 54, 136, 222, 282;
role of, 173–74
Nash equilibrium, 56
National Bureau of Economic Research, financial stability definition, 96
Netherlands, housing market boom, 117
netting arrangement, 216, 224, 282
network externalities, 50
nonbank financial institutions, 160, 239
nonfinancial firms, 164, 169–70. See also Enron
Norges Bank, financial stability definition, 96
normative functions, 88–89
notional principal, 228, 282–83
off-balance-sheet items, 283
Office of the Comptroller of the Currency (OCC), 228
official oversight, 168–69
on-the run, 283
open market operations view, 139
operational risk, 283
oversight: Enron, 236–37;
over-the-counter (OTC) derivatives, 151, 181–27, 273, 283;
banking and, 184–95;
contract structure, 195–203;
contraction and expansion, 190;
currency options, dollar-yen market, 196–97;
emerging markets and, 198–201;
exchange vs., 195–208;
infrastructure weaknesses, 212–17;
international institutions, 210;
legal and regulatory uncertainties, 215–17, 222–24;
market discipline, 206–207;
price volatility, 190–91;
private and public roles, 225–27;
risk, 183, 191, 194–95, 225–27;
structure (2004), 202;
swaps markets (1990s), 241;
top 20, 186;
vulnerabilities and, 182;
Padoa-Schioppa, Tommaso, financial stability definition, 96
partial equilibrium analysis, 121
payment: finality of, 29, 137, 139;
pension funds, 243;
performance bonds, 283
financial stability and, 114–28;
instruments, 116, 176;
public policy, 17–18, 43–66, 132
policymakers, 3, 173–74, 176
potential future exposure, 283
insurance, 249, 255, 256
central bank and, 140–42;
key elements of, 140–42;
policy implications, 114–18
prices, 37–38, 129;
prisoner’s dilemma, 44–46
private benefit, 47;
private sector, 177, 180;
financial contracts, 61
protection, market participants and, 229
property rights, assignment of: 51–52
psychological dynamics, 170–71
public good, 49, 50–53, 56, 57–58, 173, 179–80;
fiat money, 55–57;
finance and financial stability, 57–58;
private good vs., 51–52
public policy. See policy
Railtrack, 233–34, 274
real economic processes, facilitation, 83–84
reform, 152, 174, 178–79;
need for, 20–21, 276
regulation and regulators, 168, 175;
banks vs. insurers, 259;
OTC derivatives, 205–208, 215–21;
reducing uncertainty, 218–19, 222–24;
regulatory arbitrage, 238–39
financial stress, 269;
regulation, 261–62. See also insurance
remedial action, 106, 114, 116;
Netherlands housing market, 117
replacement value or cost, 284
resolution, 99, 106, 114, 116–19
resource: allocation, 36, 123;
retail investors, 274–75;
credit risk transfer vehicles and, 242–44
retirement savings, Enron, 237
risk and risk management, 24–25,31,34, 102, 103, 105, 123, 165, 212–13, 263–64, 273–74: allocation, 37–38;
central banks, 149;
financial market, 108–109, 165;
insurers and, 263–64;
measurement and modeling, 122–29;
OTC derivatives, 212–13;
partial equilibrium analysis, 121;
single-indicator analyses, 125;
sources of, 106–107;
systemically relevant, 120–21, 174–76;
transfers, 8, 151
Russia’s default and devaluation (1998), 200–201
safety nets, 173;
OTC derivatives, 222
Samuelson’s Model, 62–64
savings, institutional, 163
Schwartz, Anna, 138;
financial stability definition, 96
Securities and Exchange Commission (SEC), 201, 219
securities, 170, 201;
international debt by country, 158–59;
tradable holdings, 161
securitized finance, 160, 169, 174–75
September 11, 119, 177, 260
services provided by money, 79
settlement risk, 115
shock-transmission approach, 98–99
social arrangements, 40–42
social benefit, 47;
social contrivance, 62–64
social cost, 47
Solvency Accord, 133
“Solvency I and II” Directives, 262
solvency, insurance companies, 268
soundness indicators, IMF, core and encouraged, 111–12
spread, credit derivatives premium and bond, 241
stability, 19, 58, 69–71, 271;
definitions, 15, 82–83, 93–97;
efficiency and, 101–102;
importance, 3–9, 11;
instability vs., 91–93;
insurance or reinsurance, 269;
issues, 18, 23;
OTC derivatives, 191, 222;
perpetual with efficiency or inefficiency, 71–72;
range of, 83, 86–87
store of value, 30–31, 32;
Samuelson’s Model, 62–64
stress testing, 113–14, 125–26, 133;
structural changes, 133, 160, 164
supervision, 118, 132–33, 168, 176, 179, 272–73
supply, private vs. social, 68–69
surety bond, 234, 265
surveillance, 115, 118
swap agreements, 218–19
swap transactions, 185, 223, 284
system, 80–81, 132;
systemic risk, 81, 137;
OTC derivatives, 191, 194–95;
private and public roles, 225–27
systems, expansion, 3
taxpayer costs, 175
technical capability, 160
Tesobono swap, 284
Thornton, Henry, 135–36
threats, to stability, changed, 174–76
Tietmeyer, Hans, 176
time consistency, 121
tools, analytical and measurement, 113–14
total return swap, 284
transaction costs, 169
transparency, 115, 166–69, 276;
credit derivatives, 238;
credit risk transfers, 241;
insurance companies, 263–64;
OTC derivatives, 205
Treasury bonds, 283
trust, human, 18–19, 31, 79;
underwriting losses, investments and, 248–57
United Kingdom Financial Services Authority, 134, 144;
financial stability definition, 95
United States: Federal Reserve System, 95, 136–37, 145, 148;
financial stability definition, 95;
financial system, 101–102;
repurchase market, 148
unit-of-account service, 61
universal acceptability, 56
value at risk (VaR), 284
value of services, relative, 34
variables, distribution, 113
OTC derivatives, 190–91, 208–13
Volcker, Paul, 136–37
judging scope and impact, 110–13. See also risks
wealth accumulation, 36–37
Wellink, Nout, financial stability definition, 97
willingness to pay, 266
worker-owner promise, 34
yen, OTC currency options, 196–97
About the Author
Garry J. Schinasi is an Advisor in the Finance Department of the International Monetary Fund (IMF). He received his Ph.D. in economics from Columbia University in 1979, and, before joining the IMF, he was on the staff of the Board of Governors of the U.S. Federal Reserve System from 1979 to 1989. From 1992 to 2001, Mr. Schinasi held various positions in the IMF’s Research Department. He contributed to the IMF’s semiannual World Economic Outlook (1992–94), was a comanager of the IMF’s capital market surveillance exercise (1994–2003), and was coauthor and coeditor of International Capital Markets: Developments, Prospects, and KeyPolicy Issues (1994–2001) and the Global Financial Stability Report (2002–03). Mr. Schinasi has published articles in The Review of Economic Studies, Journal of Economic Theory, Journal of International Money and Finance, and other academic and policy journals.
“The economic and institutional transformation of central banking that has taken place over the past four decades has been driven mainly by monetary policy issues. However, it has profoundly affected another historical mission of central banks—the preservation of financial stability. Financial stability is gradually emerging as a distinct policy function, requiring its own body of scholarship, not to be confused with monetary policy on the one side, and supervision on the other side, although it is related to both.
“Building an analytical approach and a policy paradigm consistent with this new setting as well as with the changing landscape of financial markets and institutions is one of the tasks of today’s research and policy agenda.
“Garry Schinasi takes us a big step forward in the fulfilment of this task. His book Safeguarding Financial Stability represents a brilliant attempt to provide solid and updated foundations to policies aiming at financial stability. The book is based on a thorough acquaintance with the literature, understanding of the real world, analytical skill, sense of the policy issues, familiarity with the diversity of country situations, and good judgment.
“The book can already be considered required reading for anyone interested in the subject of financial stability. Its clarity makes it accessible to policymakers as well as practitioners. At the same time the book will stir debate and further research in academic circles.”
Executive Board Member (1998–2005),
European Central Bank
More endorsements of Safeguarding Financial Stability may be found inside (p. v–vi).