Скачать или смотреть The Lesson from Financial Crisis

Credit Products:
One of the connections with Investment Banks reads that Investment Banks innovated Credit Products. One artefact of that innovation is that the speed with which sticky, long-term lending such as mortgages could become shaped into a commodity that could very easily be purchased and passed on.
The ability to take loans and convert them into securities which could be sold, facilitated a much smoother and quicker transfer of risk. In addition, the tailoring of that product, through tranche technology, allowed a new array of securities to be created which would suit a plethora of investor tastes, which of course encouraged further investor participation and created new waves of demand for this product.

Model Risk:
Another frailty could be summed up as model risk. During the creation of credit products, from very simple examples whose value depended only on a single variable, to more complex structures which depended on financial calculus, models had been developed hand in glove.
The purpose of these models was foremost to take observable market variables in order to calculate consistent valuations for products which could not be otherwise observed in the marketplace. In other words, the legal and structural process of converting sticky, long-term loans into securities needed to have a framework which gave confidence that the valuation and therefore liquidity of these products could be upheld during different market conditions.

Interconnectedness and Innovation:
The reliance on the belief in interconnectedness and innovation was the story of the run up to the crisis. Closer analysis of the systemic nature of institutions and their interconnectedness, particularly around the willingness and ability to finance each other proved to be the trigger to the evaporation of confidence in banks and between banks during the crisis. The balancing act around stability and equilibrium could only last as long as the whole believed in the parts.


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Since joining the City as an underwriter, Richard has been fascinated by the connectivity and roles played by various parts of the Square Mile. He spent many years in asset management before moving into banking in various derivatives and solutions roles. Recently, Richard took a year out and worked with Finance Unlocked to spark further fascination and interest in finance.


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