Financial Crisis

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A New, Analytics-Based Era of Banking Dawns at State Street

Change does not come easy to established institutions, particularly when they count their longevity in centuries rather than decades. Yet in the wake of the global financial crisis, State Street Bank has elected to revamp 200+ years (and counting) of banking practices in favor of a data-driven, analytics-based business model. In doing so, it created a new business, SSGX — and initiated significant cultural changes.

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Gaining a New Understanding of Risk

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In these days of uncertain markets – and an uncertain economy – risk can seem almost omnipresent. But how do you manage risk prudently – yet still grow your company? Harvard Business School professor Robert S. Kaplan began exploring risk management in the wake of the 2008 financial crisis, after he saw venerable firms such as Lehman Brothers and Bear Stearns collapse – despite having risk management functions. Here are a few of his insights on the topic of risk management.

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How to Manage Risk (After Risk Management Has Failed)

Over the past decade, a number of the world’s respected companies have collapsed. A factor was these companies’ approach to risk management. Two different views have evolved on how risk should be assessed. The first — the frequentist view — is based on historical data. The second, or Bayesian, considers risk to be in part a judgment of the observer. Many measures are being deployed to prevent future crises — a shift from frequentist to Bayesian risk management should be part of this effort.

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How This Financial Crisis Isn’t Different

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Harvard economist Kenneth Rogoff gave a fascinating guest lecture at MIT earlier this week -- looking at commonalities in a number of financial crises. Rogoff, who recently coauthored a new book, This Time is Different: Eight Centuries of Financial Folly with Carmen M.

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Expert Opinions on the Economy

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Harvard’s Martin Feldstein and MIT’s Simon Johnson offer insights on the economy and the banking system.

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Better days for innovation ahead?

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It's a fairly gloomy week on the world economic stage, with International Monetary Fund managing director Dominique Strauss-Kahn declaring a number of leading economies in depression and U.S. President Obama warning of the possibility of financial catastrophe if a stimulus bill is not passed.

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Reallocating Wall Street Talent

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“Highly skilled labor should be reallocated away from the financial industry towards more innovative sectors” of the economy, writes MIT economist Daron Acemoglu in a new essay.

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Confidence, Tricked

Since 2007, as banks took successive writedowns related to deteriorating mortgage-backed securities, the conventional wisdom was that we were facing a crisis of bank solvency triggered by falling housing prices and magnified by leverage.

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