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Suggested Reading

The following list of papers, books and reports address various aspects of financial stability.  Many of them focus on or are motivated by the recent financial crisis of 2008.  If you have suggestions for extending this reading list, please send your suggestions to

BIS-IMF-FSB (2009): Report to G20 Finance Ministers and Governors: Guidance to Assess the Systemic Importance of Financial Institutions, Markets and Instruments: Initial Considerations, October 2009.

ECB (2010a): "Analytical models and tools for the identification and assessment of systemic risks," Financial Stability Review, June 2010.

ECB (2010b): "New quantitative measures of systemic risk," Financial Stability Review, December 2010.

G20 Working Group 1, 2009, "Enhancing Sound Regulation and Strengthening Transparency: Final Report," March 25.

Kindleberger, C. and R. Aliber, 2005, Manias, Panics, and Crashes:  A History of Financial Crises, 5th edition.  New York: John Wiley & Son.

Minsky, H., 1982, Can "It" Happen Again?: Essays on Instability and Finance.  New York: M. E. Sharpe.

Alessi, L. and C. Detken (2009). ‘Real time’ early warning indicators for costly asset price boom/bust cycles: A role for global liquidity. ECB Working Paper, No. 1039.

Borio, C (2010a): "Implementing a macroprudential framework: blending boldness and realism", keynote address for the BIS-HKMA research conference, Honk Kong SAR, 5-6 July 2010.

Borio, C and M Drehmann (2009a): "Towards an operational framework for financial stability: 'fuzzy' measurement and its consequences", BIS Working Papers, no 284.

Caruana, Jaime (2010): "Macroprudential policy: could it have been different this time?" speech, and

Reinhart, C and K Rogoff (2009):  This time is different: eight centuries of financial folly,  (Princeton University Press: 2009).

Acharya, C and L Pedersen, T Philippon, and M Richardson (2010): "Measuring Systemic Risk," working paper, March 2010

Adrian, T and M Brunnermeier (2008): "CoVaR," Federal Reserve Bank of New York Staff Report no. 348,

Huang, X and H Zhou, and H Zhu (2009): "Assessing the Systemic Risk of a Heterogeneous Portfolio of Banks During the Recent Financial Crisis," Federal Reserve Board Finance and Economics Discussion Series 2009-44

Capuano,  C (2008): "The option-iPoD. The Probability of Default Implied by Option Prices Based on Entropy," IMF Working Paper 08/194 (Washington: International Monetary Fund).

Gray, D and A Jobst (2010): "Systemic CCA - A Model Approach to Systemic Risk," paper presented at conference sponsored by the Deutsche Bundesbank and Technische Universitaet Dresden, 28-29 October 2010

Khandani, A., Lo, A. and R. Merton, 2010, "Systemic Risk and the Refinancing Ratchet Effect," working paper, MIT.

Merton, R. and Z. Bodie, 1993, "Deposit Insurance Reform: A Functional Approach," Carnegie-Rochester Conference Series on Public Policy 38, 1-34.

Nijskens, R. and W. Wagner, 2011, "Credit Risk Transfer Activities and Systemic Risk: How Banks Became Less Risky Individually But Posed Greater Risks to the Financial System at the Same Time," Journal of Banking & Finance, forthcoming.

Segoviano, Miguel A. and Goodhart, Charles (2009) Banking stability measures. Discussion paper, 627. Financial Markets Group, London School of Economics and Political Science, London, UK.

Billio, M and M Getmansky, A Lo, and L Pelizzon (2010): "Econometric measures of systemic risk in the finance and insurance sectors," NBER Working Paper 16223, July 2010

ECB (2010a): "Analytical Financial networks and financial stability," Financial Stability Review, June 2010.

IMF (2009b): "Assessing the Systemic Implications of Financial Linkages," Global Financial Stability Review, April 2009, Chapter 2

Sterne, et al (2010): "Should Central Banks have a RAMSI?," Chief economists' workshop, Bank of England, May 2010

Alfaro, R and M Drehmann (2009): "Macro stress tests and crises: what can we learn?", BIS Quarterly Review, December, pp 29-41.

Hirtle, Beverly., T. Schuermann,  K. Stiroh "Macroprudential Supervision of Financial Institutions: Lessons from the SCAP," Federal Reserve Bank of New York Staff Report No. 409.

Breuer, T., M. Jandacka, K. Rheinberger, and M. Summer, 2009, "How to Find Plausible, Severe and Useful Stress Scenarios," International Journal of Central Banking, 5, 205-224.

Brunnermeier, M and G Gorton and A Krishnamurthy (2010): "Risk Topography," working paper, Princeton, Yale and Northwestern Universities

Duffie, D (2010): "Systemic Exposures: A 10-by-10-by-10 Approach," working paper, Stanford University,

Lucas, D., 2010, Measuring and Managing Federal Financial Risk.  Chicago, IL: University of Chicago Press.

Sapra, H. (2008), "Do Accounting Measurement Regimes Matter? A Discussion of Mark-to-Market Accounting and Liquidity Pricing", Journal of Accounting and Economics 45, 379-387.

Chan, N., Getmansky, M., Haas, S. and A. Lo, 2006, "Do Hedge Funds Increase Systemic Risk?,"  Federal Reserve Bank of Atlanta Economic Review Q4, 49-80.

Getmansky, M., Lo, A. and I. Makarov, 2004, "An Econometric Analysis of Serial Correlation and Illiquidity in Hedge-Fund Returns," Journal of Financial Economics 74, 529-609.

Hu, X., Pan, J. and J. Wang, 2010, "Noise as Information for Illiquidity," working paper, MIT

Khandani, A. and A. Lo, 2011, "What Happened to the Quants in August 2007?: Evidence from Factors and Transactions Data," Journal of Financial Markets 14, 1-46.

Pojarliev, M. and R. Levich, 2011, "Detecting Crowded Trades in Currency Funds," Financial Analysts Journal  67, 26-39.

Billio, M and M Getmansky, A Lo, and L Pelizzon (2010): "Econometric measures of systemic risk in the finance and insurance sectors," NBER Working Paper 16223, July 2010

Kritzman, M., Li, Y., Page, S. and R. Rigobon, 2010, "Principal Components as a Measure of Systemic Risk," working paper, MIT. Geanakoplos, J (2010): "Solving the Present Crisis and Managing the Leverage Cycle," FRBNY Economic Policy Review, August 2010.

Fender, I. and P. McGuire (2010): Bank structure, funding risk and international shock transmission: concepts and measurement. BIS Quarterly Review, pp. 63-79.

Khandani, A., Kim, A. and A. Lo, 2010, "Consumer Credit Risk Models via Machine-Learning Algorithms," Journal of Banking & Finance 34, 2767-2787.

Kritzman, M. and Y. Li, 2010, "Skulls, Financial Turbulence, and Risk Management," Financial Analysts Journal  66, 30-41.

Systemic Risk Research

Acharya, Viral, and Ouarda Merrouche, 2009, "Precautionary Hoarding of Liquidity and Inter-Bank Markets: Evidence from the Sub-Prime Crisis", Bank of England. [URL]

Adrian, Tobias, and Markus Brunnermeier, 2009, "CoVaR", Federal Reserve Bank of New York. [URL]

Aikman, David, Piergiorgio Alessandri, Bruno Eklund, Prasanna Gai, Sujit Kapadia, Elizabeth Martin, Nada Mora, Gabriel Sterne, and Matthew Willison, 2009, "Funding liquidity risk in a quantitative model of systemic stability", Bank of England. [URL]

Allen, Franklin, and Ana Babus, 2007, "Networks in Finance", Wharton School Publishing. [URL]

Aragonés, Jose, Carlos Blanco, and Kevin Dowd, 2001, "Incorporating Stress Tests into Market Risk Modeling", Derivatives Quarterly, 44-49. [URL]

Bank of England, 2009, "The role of macroprudential policy", Bank of England. [URL]

Bårdsen, Gunnar, Kjersti-Gro Lindquist, and Dimitrios P. Tsomocos, 2006, "Evaluation of macroeconomic models for financial stability analysis", Norges Bank. [URL]

Basel Committee on Banking Supervision, BIS, 2009, "Stress testing at major financial institutions: survey results and practice", BIS. [URL]

Basel Committee on Banking Supervision, BIS, 2009, "Principles for sound stress testing practices and supervision", BIS. [URL]

Basel Committee on Banking Supervision, BIS, 2009, "International framework for liquidity risk measurement, standards and monitoring", BIS. [URL]

Basel Committee on Banking Supervision, BIS, 2009, "Strengthening the resilience of the banking sector", BIS. [URL]

Basel Committee on Banking Supervision, BIS, 2004, "Stress-testing financial systems: an overview of current methodologies", BIS. [URL]

Basu, Sanjay, 2009, "Stress testing for Market Risk: A comparison of VaR methods", National Institute of Bank Management (NIBM); Pune, India. [URL]

Bee, M., 2001, "Mixture models for VaR and stress testing", Università di Trento. [URL]

Beracha, Eli, and Mark Hirschey, 2009, "When Will Housing Recover?", Financial Analysts Journal, March/April, 65, 36-47. [URL]

Berkowitz, J., 1999/2000, "A Coherent Framework For Stress Testing", Journal of Risk, Winter, 2, 1-11. [URL]

Bernoth , Kerstin, and Andreas Pick, 2009, "Forecasting the Fragility of the Banking and Insurance Sector", German Institute for Economic Research (DIW Berlin). [URL]

Bogle, John C., and Rodney N. Sullivan, 2009, "Markets in Crisis", Financial Analysts Journal, January/February, 65, 17-24. [URL]

Boss, Michael, Gerald Krenn, Claus Puhr, and Martin Summer, 2006, "Systemic Risk Monitor: A Model for Systemic Risk Analysis and Stress Testing of Banking Systems", Financial Stability Report (Oesterreichische Nationalbank), 11, 83-95. [URL]

Bouchaud, Jean-Philippe, and Marc Potters, 2009, "Financial Applications of Random Matrix Theory: a short review", Science and Finance. [URL]

Breuer, T., and G. Krenn, 2000, "Identifying Stress Test Scenarios", Austrian National Bank. [URL]

Breuer, T., G. Krenn, and F. Pistovcak, 2002, "Stress Tests, Maximum Loss, and Value at Risk", Austrian National Bank. [URL]

Breuer, Thomas, Martin Jandacka, Klaus Rheinberger, and Martin Summer, 2009, "How to Find Plausible, Severe and Useful Stress Scenarios", International Journal of Central Banking, 5, 205-224. [URL]

Bullard, James, Christopher J. Neely, and David Wheelock, 2009, "Systemic Risk and the Financial Crisis: A Primer", Federal Reserve Bank of St. Louis Review, September, 91, 403-418. [URL]

Bunn, Philip, Alastair Cunningham, and Mathias Drehmann, 2005, "Stress testing as a tool for assessing systemic risks", Financial Stability Review, June, 18, 116-126. [URL]

Buzna, Lubos, Karsten Peters, Hendrik Ammoser, Christian Kuehnert, and Dirk Helbing, 2007, "Efficient Response to Cascading Disaster Spreading", Physical Review E, May, 75, 056107. [URL]

Calomiris, Charles, 2009, "Banking Crises Yesterday and Today", The Pew Charitable Trusts. [URL]

Cowen, Tyler, 2009, "A Simple Theory of the Financial Crisis; or, Why Fischer Black Still Matters", Financial Analysts Journal, May/June, 65, 17-20. [URL]

Danielsson, Jon, Hyun Song Shin, and Jean-Pierre Zigrand, 2009, "Risk Appetite and Endogenous Risk", London School of Economics. [URL]

De Bandt, Olivier, and Philipp Hartmann, 2000, "Systemic Risk: A Survey", European Central Bank. [URL]

De Nicolò, Gianni, and Marcella Lucchetta, 2009, "Systemic Risk and the Macroeconomy", International Monetary Fund. [URL]

Derman, Emanuel, 2009, "Models", Financial Analysts Journal, January/February, 65, 28-33. [URL]

Duffey, Romney B., 2009, "The Quantification of Systemic Risk and Stability: New Methods and Measures", Atomic Energy of Canada Ltd.. [URL]

Duffie, Darrell, 2007, "Innovations in Credit Risk Transfer: Implications for Financial Stability", Stanford University. [URL]

Duffie, Darrell, and Haoxiang Zhu, 2009, "Does a Central Clearing Counterparty Reduce Counterparty Risk?", Stanford University. [URL]

Dunaway, Steven, 2009, "Global Imbalances and the Financial Crisis", Council on Foreign Relations, Center for Geoeconomic Studies. [URL]

Eisenberg, Larry, and Thomas Noe, 1999, "Systemic risk in financial networks", Tulane University. [URL]

Erel, Isil, Stewart C. Myers, and James A. Read, 2009, "Capital Allocation", Ohio State University. [URL]

Ezra, Don, 2009, "The Second Moment", Financial Analysts Journal, January/February, 65, 34-36. [URL]

Faff, Robert, and Jerry Parwada, 2009, "Were Bank Bailouts Effective during the 2007-2009 Financial Crisis? Evidence from Counterparty Risk in the Global Hedge Fund Industry", University of New South Wales. [URL]

Federal Reserve, Board of Governors, 2009, "The Supervisory Capital Assessment Program: Overview of Results", Board of Governors of the Federal Reserve. [URL]

Finger, Christopher C., 2008, "Fishing for Complements", RiskMetrics Group Research Monthly, September, x, 1-7. [URL]

Foglia, Antonella, 2008, "Stress testing credit risk: a survey of authorities' approaches", Banca d'Itatlia. [URL]

Gorton, Gary, 2009, "Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007", Yale University. [URL]

Gray, Dale, and James P. Walsh, 2008, "Factor Model for Stress-testing with a Contingent Claims Model of the Chilean Banking System", International Monetary Fund. [URL]

Gray, Dale F., Robert C. Merton, and Zvi Bodie, 2007, "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability", NBER. [URL]

Haldane, Andrew G., 2009, "Rethinking the Financial Network", Bank of England. [URL]

Haldane, Andrew G., 2009, "Why Banks Failed the Stress Test", Bank of England. [URL]

Hammond, Ross A., 2009, "Systemic Risk in the Financial System: Insights from Network Science", The Pew Charitable Trusts. [URL]

Harrison, Ian, and Chris Mathew, 2008, "Project TUI: A structural approach to the understanding and measurement of residential mortgage lending risk", Reserve Bank of New Zealand. [URL]

Hendricks, Darryll, 2009, "Defining Systemic Risk", The Pew Charitable Trusts. [URL]

Hodgson, Raphael, 2009, "The Birth of the Swap", Financial Analysts Journal, May/June, 65, 32-35. [URL]

Hoenig, Thomas M., Charles S. Morris, and Kenneth Spong, 2010, "Resolution Process for Financial Companies that Pose Systemic Risk to the Financial System and Overall Economy", Hoover Press, Stanford University. [URL]

Horst, Ulrich, 2007, "Stochastic cascades, credit contagion, and large portfolio losses", Journal of Economic Behavior & Organization, May, 63, 25-54. [URL]

Huang, Rocco, and Lev Ratnovski, 2009, "The Dark Side of Bank Wholesale Funding", Federal Reserve Bank of Philadelphia. [URL]

Huang, Xin, Hao Zhou, and Haibin Zhu, 2010, "A framework for assessing the systemic risk of major financial institutions", Risk Professional, April, 2010, 40-48. [URL]

International Monetary Fund, 2009, "Global Financial Stability Report: Responding to the Financial Crisis and Measuring Systemic Risks", IMF. [URL]

Jacobs, Bruce I., 2009, "Tumbling Tower of Babel: Subprime Securitization and the Credit Crisis", Financial Analysts Journal, March/April, 65, 17-30. [URL]

Jaffee, Dwight, Anthony W. Lynch, Matthew Richardson, and Stijn Van Nieuwerburgh, 2009, "Mortgage Origination and Securitization in the Financial Crisis", In: Restoring Financial Stability: How to Repair a Failed System, Wiley. [URL]

Jokivuolle, Esa, Kimmo Virolainen, and Oskari Vähämaa, 2008, "Macro-model-based stress testing of Basel II capital requirements", Bank of Finland. [URL]

Joseph, Viju, 2009, "Managing Systemic Counterparty Risk through a Redesigned Financial Architecture", Financial Analysts Journal, November/December, 65, 1-6. [URL]

Kambhu, John, Scott Weidman, and Neel Krishnan, 2007, "New Directions for Understanding Systemic Risk: A Report on a Conference Cosponsored by the Federal Reserve Bank of New York and the National Academy of Sciences", The National Academies Press. [URL]

Kane, Edward J., 2009, "The Importance of Monitoring and Mitigating the Safety-Net Consequences of Regulation-Induced Innovation", Networks Financial Institute at Indiana State University. [URL]

Khandani, Amir E., Andrew W. Lo, and Robert C. Merton, 2009, "Systemic Risk and the Refinancing Ratchet Effect", MIT. [URL]

Kole, E., K. Koedijk, and M. Verbeek, 2003, "Stress Testing With Student's t Dependence", Erasmus Research Institute of Management (ERIM). [URL]

Kroszner, Randall S., 2006, "Central counterparty clearing: History, innovation, and regulation", Federal Reserve Bank of Chicago Economic Perspectives, 4Q2006, 37-41. [URL]

Laloux, Laurent, Pierre Cizeau, Marc Potters, and Jean-Philippe Bouchaud, 2000, "Random Matrix Theory and Financial Correlations", International Journal of Theoretical and Applied Finance, 3, 391-397. [URL]

Lopez, Jose A., 2005, "Stress Tests: Useful Complements to Financial Risk Models", FRBSF Economic Letter, June, 14, 1-3. [URL]

Lorenz, Jan, Stefano Battiston, and Frank Schweitzer, 2009, "Systemic Risk in a Unifying Framework for Cascading Processes on Networks", European Physical Journal B, Forthcoming, x. [URL]

M. Basurto, and , 2006, "Portfolio Credit Risk and Macroeconomic Shocks: Applications to Stress Testing Under Data-Restricted Environments", IMF. [URL]

Mishkin, Frederic, 1990, "Asymmetric Information and Financial Crises: A Historical Perspective", National Bureau of Economic Research. [URL]

Morris, Charles R., 2008, "The Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash", PublicAffairs. [URL]

Nier, Erlend, Jing Yang, Tanju Yorulmazer, and Amadeo Alentorn, 2008, "Network models and financial stability", Bank of England. [URL]

Novoa, Alicia, Jodi Scarlata, and Juan Solé, 2009, "Procyclicality and Fair Value Accounting", International Monetary Fund. [URL]

Oesterreichische-Nationalbank, 1999, "Stress Testing", Austrian National Bank. [URL]

Pavlov, Andrey, and Susan Wachter, 2009, "Subprime Lending and House Price Volatility", University of Pennsylvania. [URL]

Pozen, Robert, 2009, "Too Big to Save? How to Fix the U.S. Financial System", Wiley. [URL]

Richardson, Matthew, 2009, "Causes of the Financial Crisis of 2007–2009", In: Restoring Financial Stability: How to Repair a Failed System, Wiley. [URL]

Rivlin, Alice, 2009, "Systemic Risk and the Role of the Federal Reserve", The Pew Charitable Trusts. [URL]

Rochet, Jean-Charles, and Jean Tirole, 1996, "Interbank Lending and Systemic Risk", Journal of Money, Credit and Banking, November, 28, 733-762. [URL]

Rosenow, Bernd, 2005, "Random Matrix Theory for Financial Markets", Harvard University. [URL]

Rowe, David, 2005, "Whither stress testing?", Risk, October, October, xx. [URL]

Shiller, Robert J., 2008, "The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It", Princeton University Press. [URL]

Spielberg, Holger, and Heiko Carstens, 2005, "Stress Testing in the Context of Capital Adequacy Assessment", Basel Briefing, July, 9, 18-19. [URL]

Sterling, William, 2009, "Looking Back at Lehman: An Empirical Analysis of the Financial Shock and the Effectiveness of Countermeasures", Trilogy Global Advisors. [URL]

Taylor, Charles, 2009, "Managing Systemic Risks", The Pew Charitable Trusts. [URL]

Taylor, John B., 2010, "Defining Systemic Risk Operationally", Hoover Press, Stanford University. [URL]

Tempelman, Jerry H., 2009, "Will the Federal Reserve Monetize U.S. Government Debt?", Financial Analysts Journal, November/December, 65, 1-4. [URL]

Thurner, Stefan, J. Doyne Farmer, and John Geanakoplos, 2009, "Leverage Causes Fat Tails and Clustered Volatility", Santa Fe Institute. [URL]

Utsugi, Akihiko, Kazusumi Ino, and Masaki Oshikawa, 2003, "Random Matrix Theory Analysis of Cross Correlations in Financial Markets", Tokyo Institute of Technology. [URL]

Wallison, Peter J., and Kenneth E. Scott, 2009, "Monitoring Systemic Risk", Shadow Financial Regulatory Committee. [URL]

Wheelock, David, and Paul Wilson, 2009, "Are U.S. Banks too Large?", Federal Reserve Bank of St. Louis. [URL]

Zandi, Mark, 2008, "Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis", FT Press. [URL]

Cihák, Martin, 2004, "Stress Testing: A Review of key Concepts", Czech National Bank. [URL]