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Risk Management, Michel Crouhy, Dan Galai, and Robert Mark, 2001, New York: McGraw-Hill
Risk Management offers comprehensive coverage of the design and operation of a risk management system: its technical modeling and its interplay with the external regulations by which such a system is governed. More specifically, it provides a framework for viewing the policies, methodologies, data collection, and technical infrastructure used to support risk management. The book discusses investment, hedging, and management strategies. It focuses attention on the measurement of market, credit, and operational risks as integrated in a multiperiod market model as well as on liquidity risk and other long-term, horizon-risk management policies. The book looks at the role of the risk manager, often a key member of the senior executive team in any firm where risk is a key factor affecting corporate value, such as in banks and other financial and nonfinancial organizations. In this book, the authors provide the product of their academic research and their practical work in the field.
The first four chapters introduce the purpose and role of risk management: the place it holds in the institution and how the system itself is managed, particularly with regard to its regulation and its extensive internal role in guiding and meeting the requirements of the institution's external overseers. Chapter 1 treats the need for risk-management systems in financial institutions, while Chapter 2 covers the current international regulations governing banks. In Chapter 1, the authors point out that banks are increasingly engaged in what might be called "risk-shifting" activities. These activities continue to raise the ante for expertise and know-how in controlling and pricing the assets that banks manage in the marketplace (p. 2). As derivatives are the essential instrument of risk shifting, banks now practice not only capital intermediation but also risk intermediation. Chapter 1 also presents an interesting historical review of the evolution of various derivative products in different markets since their introduction in 1972.
Chapter 2 offers a good description of the foundation and historical evolution of the regulatory environment in which banks currently operate, stressing in particular the links with deposit insurance. As we shall see Chapter 4 analyzes current regulations for market risk in detail because we come back to this later. And Chapter 1...