TY  - JOUR
AU  - Draghi,Mario
AU  - Giavazzi,Francesco
AU  - Merton,Robert C.
TI  - Transparency, Risk Management and International Financial Fragility
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9806
PY  - 2003
Y2  - June 2003
UR  - http://www.nber.org/papers/w9806
L1  - http://www.nber.org/papers/w9806.pdf
N1  - Author contact info:
Mario Draghi
Bank of Italy
E-Mail: mario.draghi@bancaditalia.it

Francesco Giavazzi
Universita' Bocconi and IGIER
Via Guglielmo Rontgen, 1
Milan 20136
ITALY
Tel: 0039-02-5836-3304
Fax: 0039-02-5836-3302
E-Mail: francesco.giavazzi@unibocconi.it

Robert C. Merton
Massachusetts Institute of Technology
Sloan School of Management, E62-634
77 Massachusetts Avenue
Cambridge, MA 02139
Tel: 617 715 4866
E-Mail: rmerton@mit.edu
AB  - 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 viewpoint of the government, of unanticipated risks in the balance sheet of the public sector. The paper also discusses how risk exposures can be measured, hedged and transferred through the use of derivatives, swap contracts, and other contractual agreements with specific reference to emerging markets.
ER  -