Riccardo Rebonato on Risk Management and the Crisis

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4.7 • 4.3K Ratings

🗓️ 8 June 2009

⏱️ 62 minutes

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Summary

Riccardo Rebonato of the Royal Bank of Scotland and author of Plight of the Fortune Tellers talks with EconTalk host Russ Roberts about the challenges of measuring risk and making decisions and creating regulation in the face of risk and uncertainty. Rebonato's book, written before the crisis, argues that risk managers often overestimate the reliability of the measures they use to assess risk. In this conversation, Rebonato applies these ideas to the crisis and to the challenges of designing effective regulation.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	another information related to today's conversation. Our email address is mailadicontalk.org. We'd
0:33.6	love to hear from you. Today is May 22nd, 2009, and my guest is Ricardo Ribernado, global
0:43.2	head of market risk and quantitative analysis at the Royal Bank of Scotland, visiting
0:48.1	lecturer in mathematical finance at Oxford University and author of, Plite of the Fortune
0:53.0	Tellers. Our topic today is the insights of that book, Plite of the Fortune Tellers, and
0:58.8	before we begin Ricardo, I want to say that, what our listeners know, this is really an incredible
1:04.7	book. It has many thoughtful things to say about risk and uncertainty and the challenges of
1:09.9	making financial decisions in an uncertain world. But more than that, it was written just before
1:15.0	the crisis and was remarkably prescient in the dangers that were inherent in the environment
1:19.9	of both private and public decision makers. I learned an immense amount from this book. It
1:24.5	really helped me to organize my thinking about what went wrong in the financial system. And
1:29.0	what I hope to do in this conversation is apply some of those lessons to what ended up
1:33.3	being the reality of the warnings that you mentioned in the book.
1:38.2	Thank you. That's very kind. I want to begin with a bit of recent history that you cover
1:43.7	and talk about how banking changed in the 1990s and destroyed the 363 world. We mentioned the 363
1:51.0	world a long time ago for listeners maybe six months ago in a podcast with Arnold Kling, where we
1:57.1	went back and looked at some of the history of finance and housing in the United States. But
2:01.2	Ricardo, why don't you give us your take on 363 and what happened to the environment, competitive
2:06.5	environment, regulatory environment for banking in the 1990s? Yes, the 1990s have been in 1990s
	...

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