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Keywords:Risk management 

Working Paper
The emergence and future of central counterparties

The authors explain why central counterparties (CCPs) emerged historically. With standardized contracts, it is optimal to insure counterparty risk by clearing those contracts through a CCP that uses novation and mutualization. As netting is not essential for these services, it does not explain why CCPs exist. In over-the-counter markets, as contracts are customized and not fungible, a CCP cannot fully guarantee contract performance. Still, a CCP can help: As bargaining leads to an inefficient allocation of default risk relative to the gains from customization, a transfer scheme is needed. A ...
Working Papers , Paper 10-30

Working Paper
Capital and risk: new evidence on implications of large operational losses

Operational risk is currently receiving significant media attention, as financial scandals have appeared regularly and multiple events have exceeded one billion dollars in total impact. Regulators have also been devoting attention to this risk, and are finalizing proposals that would require banks to hold capital for potential operational losses. This paper uses newly available loss data to model operational risk at internationally active banks. Our results suggest that the amount of capital held for operational risk will often exceed capital held for market risk, and that the largest banks ...
Working Papers , Paper 03-5

Working Paper
Evaluating interest rate covariance models within a value-at-risk framework

We find that covariance matrix forecasts for an international interest rate portfolio generated by a model that incorporates interest-rate level volatility effects perform best with respect to statistical loss functions. However, within a value-at-risk (VaR) framework, the relative performance of the covariance matrix forecasts depends greatly on the VaR distributional assumption. Simple forecasts based just on weighted averages of past observations perform best using a VaR framework. In fact, we find that portfolio variance forecasts that ignore the individual assets in the portfolio ...
Working Paper Series , Paper 2004-03

Journal Article
Current topics: interest rate and liquidity risk in today’s environment; money market mutual funds (MMFs); residential mortgage update; SR 11-9 (authentication supplement) and account takeover fraud

The Federal Reserve Bank of Chicago's supervision group follows current and emerging risk trends on an on-going basis. This Risk Perspectives newsletter is designed to highlight a few current risk topics and some potential risk topics on the horizon for the Seventh District and its supervised financial institutions. The newsletter is not intended as an exhaustive list of the current or potential risk topics and should not be relied upon as such. We encourage each of our supervised financial institutions to remain informed about current and potential risks to its institution.
Risk Perspectives , Issue 3rd Q

Journal Article
Loss provisions and bank charge-offs in the financial crisis: lesson learned

The enormity of the recent financial shock was not fully apparent until well into the crisis. One result was that banks did unusually low levels of pre-reserving against eventual loan losses. Much of that underreserving was related to the extraordinary decline in real estate values that led to outsized losses on mortgage loans. This experience highlights the limitations of the bank provisioning process and the need to guard against worse-than-expected economic conditions through higher capital levels.
FRBSF Economic Letter

Modern risk management and banking supervision

a speech at the Stonier Graduate School of Banking, Washington, D.C.
Speech , Paper 210

Conference Paper
Loss distribution approach

Conference Series ; [Proceedings]

Journal Article
Guidance on risk management of leveraged financing

Federal Reserve Bulletin , Issue Jun



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