ERM Frameworks and Responses to risk [81]

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Bullet points include: An apparently attractive way of mitigating risk Even if Modigliani-Miller suggests may be less useful than might appear and fashionable for firms to focus on ‘core competencies’ E.g. combining banking and insurance firms should permit economies in capital, assuming risks are largely uncorrelated Academic analysis suggests benefits of diversification not as large as expected in practice Perhaps because mergers signal prospective future risk taking by CEOs? Or because correlations may rise in periods of crisis, reducing apparent benefits of diversification?

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