Abstract

http://ssrn.com/abstract=1398102
 


 



Too Big to Fail, Hidden Risks, and the Fallacy of Large Institutions


Charles S. Tapiero


NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering

Nassim Nicholas Taleb


NYU-Tandon School of Engineering; New England Complex Systems Institute

May 2, 2009


Abstract:     
Large institutions are disproportionately more fragile to Black Swans.

This paper establishes the case for a fallacy of economies of scale in large aggregate institutions. The problem of rogue trading is taken as a case example of hidden risks where rogue traders and losses are considered independently and dependently of the institution’s size. Both independent and dependent loss and hidden positions are shown to lead to the paper’s conclusion, that size and economies of scale have commensurate risks that mitigate the advantages of size.

Keywords: economies of scale, banking crisis, risk management, operational risk

JEL Classification: D8, G11, G12, G13, N00


Not Available For Download

Date posted: May 5, 2009  

Suggested Citation

Tapiero, Charles S. and Taleb, Nassim Nicholas, Too Big to Fail, Hidden Risks, and the Fallacy of Large Institutions (May 2, 2009). Available at SSRN: http://ssrn.com/abstract=1398102 or http://dx.doi.org/10.2139/ssrn.1398102

Contact Information

Charles S. Tapiero
NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering ( email )
Brooklyn, NY 11201
United States

Nassim Nicholas Taleb (Contact Author)
NYU-Tandon School of Engineering ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
New England Complex Systems Institute ( email )
24 Mt. Auburn St.
Cambridge, MA 02138
United States
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