After Quote by Myron Scholes
“Most of the time, your risk management works. With a systemic event such as the recent shocks following the collapse of Lehman Brothers, obviously the risk-management system of any one bank appears, after the fact, to be incomplete. We ended up where banks couldn't liquidate their risk, and the system tended to freeze up.”
About This Quote
Source Speech: Risk Management Forum, 2009
Systemic shocks expose gaps in individual banks’ risk models, leading to liquidity freezes when markets seize.
In simple terms: Risk models may fail in crises.
Key Takeaway
Plan for systemic risk.
Themes
risk
systemic risk
liquidity
Mood
reflective
concerned
Type
risk
regulatory
When to use this quote
- Banking crisis
- financial regulation
- liquidity management
- contingency planning
Key Concepts
Risk modeling
stress testing
market shock
Questions to Reflect On
- What safeguards can banks add for systemic failures?
- How to improve stress testing?
A Different Perspective
Models can’t predict all extreme events.
