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“Bankruptcy of a financial institution should not be a taboo”

As personal adviser to Wim Duisenberg, the first president of the European Central Bank (ECB), Dr. Lex Hoogduin played a key role in the introduction of the euro. He is professor of monetary economics and financial institutions at Robeco and since 1980 has worked in different roles at the Dutch Central Bank, including executive director to the governing board from 2009 till 2011. In this interview Dr. Hoogduin gives his views on the origins of the financial crisis, Basel III and the tension between micro- and macro-economics.

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Hedging the unhedgeable longevity risk

Unexpected increases in longevity

Considering the illiquid nature of these swaps, along with the imbalance between the buyers and the sellers, these are still early days for this market

Unexpected increases in longevity raise the costs for life insurance companies. Longevity risk occurs when people living longer than expected.

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Funds Transfer Pricing

Principles for implemeting an FTP framework

The basic idea of transfer pricing in financial institutions is to allocate costs and benefi ts equitably across the bank. This enables the creation of (isolated) internal P&Ls for diff erent departments. Hence, funds transfer pricing (FTP) helps management to measure performance and to focus on profi table markets and clients. FTP is also often the basis for performance-based remuneration. However, to draw the right conclusions certain principles should be applied when implementing an FTP framework.

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Foreign Exchange Management

Small Companies – Big Risks?

Export companies are by definition focused on international markets. Despite the promise of increased revenues, exports inherently increase the exposure to currency and other financial markets. Recent events have clearly illustrated the huge impact of currency on price and, by extension, on the market. Regardless of the performance of the Swiss franc, one thing is certain – the past few months have been the most volatile in the history of the euro.

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Reform in the OTC derivatives market

In 2010, the European Commission (EC) made a number of proposals concerning reform in the over-the-counter (OTC) derivatives market. The EC is of the opinion that OTC derivatives contributed to the worldwide contagion of the crisis in the American housing market. The results of the reform should deliver a safer and more effi cient OTC market in order to reduce these systemic risks.

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