the problems and opportunities facing the financial services industry in its search for competitive excellence. The Center's research focuses on the issues related to managing risk at the firm level as well as ways to improve productivity and performance. The Center fosters the development of a community of faculty, visiting scholars and Ph.D. candidates whose research interests complement and support the mission of the Center. The Center works closely with industry executives and practitioners to ensure that its research is informed by the operating realities and competitive demands facing industry participants as they pursue competitive excellence. Copies of the working papers summarized here are available from the Center. If you would like to learn more about the Center or become a member of our research community, please let us know of your interest.

the problems and opportunities facing the financial services industry in its search for competitive excellence. The Center's research focuses on the issues related to managing risk at the firm level as well as ways to improve productivity and performance. The Center fosters the development of a community of faculty, visiting scholars and Ph.D. candidates whose research interests complement and support the mission of the Center. The Center works closely with industry executives and practitioners to ensure that its research is informed by the operating realities and competitive demands facing industry participants as they pursue competitive excellence. Copies of the working papers summarized here are available from the Center. If you would like to learn more about the Center or become a member of our research community, please let us know of your interest.

The effects of globalization — on the United States and more generally — is the topic of the day. Officials, academics and market participants all sense that the integration of national economies and the development of international markets have gone further than ever before. The extent of integration in turn creates a growing sense of helplessness about the ability of nations to control their destinies in the face of global markets. Does the growth of global markets pose a threat to distinctive national social systems? Does a world characterized by high levels of trade and large international capital flows jeopardize social cohesion and economic and financial stability and therefore require the strengthening of national safety nets and international institutions, perhaps including a world financial regulator and an international lender of last resort, or can private markets develop mechanisms for containing these risks? And, failing this, will governments retreat toward financial autarchy and succumb to populist pressures for trade protectionism? The idea that globalization today is unprecedented (if not necessarily the preceding paragraph’s pessimistic vision) is implicit in publications like Lawrence, Bressand and Ito (1996) and much informed policy discussion. But there is also an undercurrent which recognizes that

this article examines the causes and effects of these crises and how governments have responded. It finds that both macroeconomic and microeconomic factors have figured in bank crises and that, based on the criteria developed here, few governments have responded well to these episodes. To better manage insolvencies, policymakers must develop a regulatory framework that allows banks to respond more robustly to shocks and ensures proper management and oversight. That bankers have not regularly planned for shocks suggests that they have not had the incentive to do so

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Abstract: The young science of complexity, which studies systems as diverse as the human body, the earth and the universe, offers novel insights on the question raised in the title. The science of complexity explains large-scale collective behavior, such as well-functioning capitalistic markets, and also predicts that financial crashes and depressions are intrinsic properties resulting from the repeated nonlinear interactions between investors. Applying concepts and methods from complex theory and statistical physics, we have developed mathematical measures to successfully predict the emergence and development of speculative bubbles as well as depressions. This essay attempts to capture and extend the essence of the book with the same title published in January 2003 by Princeton University Press. Recent novelties and live predictions are available at

This paper attempts to set forth a framework for thinking about growth volatility which is general enough to incorporate the important structural, institutional, and policy variations among countries which might account for differences in their macroeconomic performance. And it focuses particularly on the role of the financial sector. The paper is divided into 2 sections. The first discusses the importance of short run dynamic effects in determining long run outcomes, and the role of the financial sector, elements which to date, have not been sufficiently incorporated in traditional macroeconomic analysis. The second looks at the data, which reveal some interesting aspects of the determinants of volatility, namely the importance of the financial sector

This paper briefly describes recent papers on the economics of rational herding in financial markets. Some models can predict perfect herding, in which rational agents all act alike without any countervailing force. Such herding typically arises either from direct payoff externalities (negative externalities in bank runs; positive externalities in the generation of trading liquidity or in information acquisition), principal-agent problems (based on managerial desire to protect or signal reputation), or informational learning (cascades). The paper also provides a few pointers to related literature and suggests issues to be addressed in future research.

We present a model in which an asset bubble can persist despite the presence of rational arbitrageurs. The resilience of the bubble stems from the inability of arbitrageurs to temporarily coordinate their selling strategies. This synchronization problem together with the individual incentive to time the market results in the persistence of bubbles over a substantial period. Since the derived trading equilibrium is unique, our model rationalizes the existence of bubbles in a strong sense. The model also provides a natural setting in which news events, by enabling synchronization, can have a disproportionate impact relative to their intrinsic informational content.

Mathematics and statistics have transformed the day-to-day trading in the world's financial markets. This has lead to new ways to reduce (or "hedge") risks which provides an important service to society, but also a temptation to very big gambles, with a potential for extreme losses. This paper discusses some of the ways statistics and mathematics can be used to understand and protect against very large, "catastrophic" financial risks. We argue that means don't mean anything for catastrophic risk, that separate large financial risks often are better handled by separate companies, and that the mathematical aspects of risk can't be summarized into one number. We also believe that there is a large potential for improved risk management in financial institutions, where extreme value theory, a speciality of the present authors, may be a useful tool. Improvements, however will not come for free but require long and hard work, where mathematics is only one part of the total effort. ...