
Potential for instability over-hyped, says Ferguson
Concerns that common approaches to risk management, such as value-at-risk modelling, may be promoting herding behaviour is unfounded, and regulators must not overestimate the role risk models play in decision making, Ferguson continued. “Risk managers get useful information from risk models. But judgment, experience, limits and procedures for exceptions also play significant roles in risk management,” Ferguson said. “As a consequence, risk models are never likely to be the dominant driver of the actions of financial firms and are therefore unlikely to generate significant herding behaviour.”
Furthermore, fears that insurance companies are unable to manage credit derivatives are also unwarranted, said Fergsuon.
Regulators should keep enough distance from the markets to give financial innovations such as credit derivatives a chance to succeed, Ferguson added. “The new market for credit derivatives has grown largely outside of traditional regulatory oversight, and...evidence to date suggests that it has made an important contribution to financial stability in the most recent credit cycle.”
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Risk management
FMIs pose greatest challenge for operational resilience tests
Risk Live: Calls for large-scale industry exercises to plan what happens if major CCPs go down
New BoE rules could force banks to cull multiplying models
Risk Live: Model risk management to become more labour-intensive, as model definition is broadened
Risk managers mull Basel-style climate standards
Risk Live: Splintered approach to stress-testing across jurisdictions “very, very worrying”, says risk expert
Risk managers warn of emerging geopolitical crisis in Asia
Risk Live: Rising political tension between China and Taiwan has bank risk management teams on high alert
FCA may offer its market data to surveillance tech start-ups
Risk Live: Regulator concerned rapid AI adoption will favour incumbent vendors; aims to launch sandbox
After SVB downfall, EBA stress test seeks out unrealised losses
European regulator asks for data on the fair value and sensitivity of bonds and their hedges
Risk modellers navigate fearful new world of depositor behaviour
Silicon Valley Bank suffered fastest bank run in history, but how should others respond?
Eurex scrambles to avert Treasury collateral ban on US default
Current policy prevents CCP from selectively excluding eligible collateral