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Restoring Confidence In The Financial System: See-through leverage: a powerful new tool for revealing and managing risk by Sean Tully, Richard Bassett

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2: The Unintended Consequences Of Basel I And Basel II

“I can’t believe that!” said Alice.

“Can’t you?” the Queen said in a pitying tone. “Try again: draw a long breath, and shut your eyes.” Alice laughed. “There’s no use trying,” she said: “one can’t believe impossible things.”

“I daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”

From Lewis Carroll’s Through the Looking Glass, Chapter 5

Chapter summary

This chapter will examine the unintended consequences of Basel I, Basel II and the 1996 Market Risk Amendment: the increase in systemic risk and the creation of the shadow banking system.

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