What Can We Learn from AIG’s Collapse?

Chi Lo
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Chi Lo: Economic Strategist

Chapter 6 in Asia and the Subprime Crisis, 2009, pp 61-69 from Palgrave Macmillan

Abstract: Abstract AIG’s failure in the subprime crisis carries significant implications for financial regulators, especially the Chinese regulators, who are deregulating the insurance sector and considering the development of a credit derivatives market in the country. Regulatory loopholes allowed AIG to stray away from its core business; notably into the credit default swaps (CDS) business that triggered its failure. Assetliability mismatch in AIG’s securities lending programme worsened its liquidity problem, turning it into a solvency problem. The moral of the story is that insurance companies must not be tempted to maximise short-term profit; risk control is of paramount importance to avoid an AIG fate.

Keywords: Stock Price; Credit Risk; Hedge Fund; Credit Default Swap; Risk Control (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-25113-7_7

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DOI: 10.1057/9780230251137_7

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