Princeton Professor Shin kicks off Industry Seminars

Last Friday, the Institute staged the first of its new Swiss Finance Industry Seminars with a presentation by Princeton's Professor Hyun Song Shin, who described his research on understanding the credit crisis.

Professor Shin's views on the credit crisis have been published recently in the Washington Post and he had just spent the week participating at a conference held at Study Centre Gerzensee, near Berne.

Professor Shin focuses on three 'puzzles' associated with the crisis. Namely, Why the crisis apparently affects some markets but not others? How a financial problem ostensibly limited to a mere portion of the home mortgage market could come to assume such global financial significance? And finally, How is it that subprime credit risk came to be so concentrated among such sophisticated financial players as the major banks?

He points the finger at excessive leverage and the problems that can arise when financial intermediaries significantly raise leverage during booms and then attempt to lower their leverage during downturns.

When will the crisis end? Shin believes that perceptions of financial risks will not decline anytime soon. Conditions will remain as they are, he claims, until aggregate balance sheets decline, and new capital is raised, to ultimately arrive at a situation in which corporate balance sheets are adequately supported.

The next seminar in the series, held on October 7th at 7am, will be given by Michael Brennan, University of California and London Business School. Prof Brennan's presentation is entitled The mispricing return premium. Click here to register.