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Risk management is of crucial importance when the authors consider the enormous financial risk the economy is exposed to. The risks of many economic agents are regulated by various institutions. External regulators at an international level are the International Actuarial Association (IAA) and the International Accounting Standards Board (IASB), who determine the capital requirements for insurance companies. Similarly, the Basel Committee gives guidelines for the acceptable level of capital on banking supervision. Since a government or central bank could be a lender of last resort for these institutions, and their default could cause serious problems, they are regulated as well. To give a recent example, the author thinks inadequate assessment of risk played a crucial role in the current subprime mortgage crisis as well.
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