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Global Financial Systems is an innovative, interdisciplinary text that explores the ‘why’ behind global financial stability. Danielsson draws on economic theory, finance, mathematical modelling, risk theory, and policy to posit a coherent and current analysis of the global financial system.
Contents:
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 are bailouts?
14.4 Alternatives to bailouts
14.5 Bailouts in the crisis starting in 2007
14.6 Bailouts, moral hazard and politics
14.7 Model of asset bubbles
14.8 Summary
References
15 Dangerous financial instruments
15.1 Complexity kills
15.2 Derivatives
15.3 Credit default swaps
15.4 Collateralised debt obligations
15.5 Summary
Appendix A: mechanics of CDSs
Appendix B: CDO calculations
References
16 Failures in risk management and regulations before the crisis
16.1 Regulatory failures
16.2 Capital and the crisis
16.3 Summary
References
17 The ongoing crisis: 2007–2009 phase
17.1 Build-up to a crisis
17.2 Hidden and ignored risk
17.3 The changing nature of banking
17.4 Crisis 2007–2008
17.5 Was it a subprime crisis?
17.6 Policy response
17.7 Summary
References
18 Ongoing developments in financial regulation
18.1 New and changed institutions
18.2 Basel III
18.3 Liquidity
18.4 How much capital?
18.5 Recovery and resolution
18.6 What about too big to fail?
18.7 Summary
References
19 Sovereign debt crises
19.1 Newfoundland
19.2 Sovereign debt
19.3 Enforcement
19.3.1 History lessons
19.4 Background to the European sovereign debt crisis
19.5 Summary
References
Glossary
Bibliography
Index
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