NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Mario Draghi

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Working Papers

June 2003Transparency, Risk Management and International Financial Fragility
with Francesco Giavazzi, Robert C. Merton: w9806
Discussions of financial risk often fail to distinguish between risks that are consciously borne and those that are not. To understand the breeding conditions for financial crises the prime focus of concern should not be simply on large risk-taking per se, but on the unintended, or unanticipated accumulation of large risks by individuals, institutions or governments, often through the lack of knowledge or understanding of the risks by stakeholders and overseers of those entities. This paper analyses specific situations in which significant unanticipated and unintended financial risks are accumulated. It focuses, in particular, on the implicit guarantees that governments extend to banks and other financial institutions, which may result in the accumulation, often unconscious from the viewpo...

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