The majority of commentators, along with the public opinion, are inclined to identify the causes of the last financial crisis in a combination of traditional market and regulatory failures in the operation and regulation of financial markets. Whatever cannot be explained along these lines is...

Financial regulation today is largely framed by traditional business categories. The financial markets, however, have begun to bypass those categories, principally over the last thirty years. Chief among the changes has been convergence in the products and services offered by traditional...

Events such as the recent global financial crisis, the failure of Lehman Brothers, and the bailout of American International Group, have called increased attention to the opaque workings of the over-the-counter (OTC) derivatives markets which have remained unregulated until now. Nevertheless,...

The complex dynamics of world financial markets yield inherent uncertainty and the prospect of periods of enhanced volatility. The turbulent global economic and regulatory environment of the past few years has certainly illustrated this reality. As investment managers interpret clients’...

It has become almost conventional wisdom that investors should avoid funds with high expense ratios. Like many nuggets of conventional wisdom, there is some truth, but many exceptions: some of the best funds come at the price of higher expense ratios. Financial planners need this type of...

The regulatory framework established during the Great Depression was dismantled in stages after 1969. The deregulation of deposits at banks and savings institutions created incentives to widen the scope of investments that banks and thrifts could make. Novel instruments were created that should...

Dodd-Frank Wall Street Reform regulations and other postcrisis regulations and guidelines have put enormous pressure on financial institutions to optimize the use of their scarce capital and to improve their return on equity (ROE) which has been significantly compressed compared to historical...

In this study we survey practices and supervisory expectations for stress testing (ST) in a credit risk framework for banking book exposures. We introduce and motivate ST; and discuss the function, supervisory requirements and expectations, credit risk parameters, interpretation results with...

The new Basel III rules for liquidity and funding will have an impact on several areas of the banking business. As a consequence, it is useful to identify the key areas within a bank where Basel III has the biggest impact and to define the necessary strategies, processes, and new products to...

The daily returns on leveraged and inverse-leveraged exchange-traded funds (LETFs) are a multiple of the daily returns of a reference index. Because LETFs rebalance their leverage daily, their holding period returns can deviate substantially from the returns of a leveraged investment. While...