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What Can We Learn from AIG’s Collapse?

In: Asia and the Subprime Crisis

Author

Listed:
  • Chi Lo

    (Economic Strategist)

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.

Suggested Citation

  • Chi Lo, 2009. "What Can We Learn from AIG’s Collapse?," Palgrave Macmillan Books, in: Asia and the Subprime Crisis, chapter 6, pages 61-69, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-25113-7_7
    DOI: 10.1057/9780230251137_7
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    Cited by:

    1. Emanuel Vespa & Taylor Weidman & Alistair J. Wilson, 2021. "Testing Models of Strategic Uncertainty: Equilibrium Selection in Repeated Games," Papers 2101.05900, arXiv.org.

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