How Big Banks Fail and What to Do about It

Darrell Duffie is the Dean Witter Distinguished Professor of Finance at Stanford University's Graduate School of Business. He is the author of "Dynamic Asset Pricing Theory" and the coauthor of "Credit Risk: Pricing, Measurement, and Management" (both Princeton).

"[T]his volume will give readers a deeper understanding of how modern banking works."--Choice "There are precious few manuals on global finance. To be sure, there are enough leaden textbooks and scholarly tomes to crush many a library, but there are few nuts-and-bolts guides. Darrell Duffie has performed a great service by attempting to explain in simple terms why and how major investment banks (what he calls 'dealer banks') collapse... How Big Banks Fail is ... a valuable addition to public literature on the global financial crisis."--Joel Campbell, International Affairs "This is a clear and readable account of the mechanisms and incentives at play."--Saxon Brettell, Business Economist "I highly recommend the book. I believe the text should be standard reading for anybody involved with regulating and supervising financial institutions as it offers valuable insights into the plumbing of financial markets and the mechanisms that can cause bank failures. The discussed mechanisms are thought provoking and can provide researchers and regulators with valuable ideas for future research on the financial system as well as banking regulation."--Jan Wrampelmeyer, Financial Markets and Portfolio Management

• List of Figures and Tables ix Preface xi Chapter One: Introduction 1 Chapter Two: What Is a Dealer Bank? 9 Chapter Three: Failure Mechanisms 23 Chapter Four: Recapitalizing a Weak Bank 43 Chapter Five: Improving Regulations and Market Infrastructure 53 Appendix: Central Clearing of Derivatives 63 Notes 71 Bibliography 79 Index 87