Global Financial Systems

Author’s acknowledgements

Publishers’ acknowledgments

 

Introduction

 

1 Systemic risk

1.1 Case study: the 1914 crisis

1.2 The concept of systemic risk

1.3 Who creates systemic risk?

1.4 Fundamental origins of systemic risk

1.5 Summary

 

References

 

2 The Great Depression 1929–1933

2.1 Build-up to a depression

2.2 The Great Depression

2.3 Causes of the Great Depression

2.4 Implications for future policy

2.5 Summary

 

3 Endogenous risk

 

3.1 Millennium Bridge

3.2 Dual role of prices

3.3 Risk

3.4 Dynamic trading strategies

3.5 Actual and perceived risk and bubbles

3.6 The LTCM crisis of 1998

3.7 Conclusion

 

4 Liquidity

 

4.1 The liquidity crisis of 1998

4.2 What is liquidity?

4.3 Liquidity models

4.4 Policy implications

4.5 Summary

 

References

 

5 The central bank

 

5.1 The origins of central banks

5.2 Banking supervision

5.3 Monetary policy

5.4 Financial stability

5.5 Bailing out governments

5.6 Challenges for central banking

5.7 Summary

 

Appendix: central bank interest rate

 

References

 

6 The Asian Crisis of 1997 and the IMF

6.1 Building up to a crisis

6.2 The crisis in individual countries

6.2.3 South Korea

6.3 Reasons for the crisis

6.4 Policy options for the crisis countries

6.5 Role of the IMF

6.6 Wider lessons

6.7 Summary

 

References

 

7 Banking crises

 

7.1 Money and early banking

7.2 Moral hazard

7.3 Costs of banking crises

7.4 Causes of banking crises

7.5 Bank and banking system failures

7.6 Summary

 

References

 

8 Bank runs and deposit insurance

 

8.1 Bank runs and crises

8.2 Modelling deposit insurance

8.3 Pros and cons of deposit insurance

8.4 Summary

 

References

 

9 Trading and Speculation

 

9.1 Trading scandals and abuse

9.2 Trading and risk

9.3 Trading activities

9.4 Policy issues

9.5 Summary

 

References

 

Appendix: basic terminology of trading

 

10 Credit markets

 

10.1 Market for credit

10.2 Credit rating agencies

10.3 Credit models

10.4 Margins, haircuts and mark–to–market

10.5 Securitisation

10.6 Summary

 

11 Currency markets

 

11.1 Fixed or floating

11.2 Foreign exchange interventions

11.2.1 Sterilisation

11.3 Capital controls

11.4 Exchange rate regimes

11.5 Perils of overvaluation

11.6 Undervaluation and ‘currency wars’

11.7 Reserve currency

11.8 Summary

 

Appendix: exchange rate regimes

 

References

 

12 Currency crisis models

 

12.1 First-generation models

12.2 The Argentinean crisis

12.3 Second-generation models

12.4 European crisis 1992–1993

12.5 Global games currency crisis model

12.6 Summary

 

References

 

13 Financial regulations

13.1 Banking regulations

13.2 Bank capital

13.3 International financial regulations: Basel

13.4 Summary

 

Appendix: Value-at-Risk

 

References

 

14 Bailouts

 

14.1 Successful and unsuccessful bailouts

14.2 The historical origins of lending of last resort (LOLR)

14.3 What