chapter  29
11 Pages

Financialization as Mathematization

The Calculative and Regulatory Consequences of Risk Management
WithNathan Coombs, Arjen van der Heide

This chapter provides a historical overview of the rise of risk management and addresses how the Basel Committee on Banking Supervision enthusiastically embraced the new science of financial risk management in the 1990s. It focuses on the ambiguous fate of risk management in the aftermath of the global financial crisis and argues that while significant attempts at regulatory reform have been made, the calculative and regulatory infrastructures set in place by the banking sector’s financialization remain mostly unperturbed. Inspired in part by the social studies of finance, a new literature is turning its attention to the mathematization of financial valuation practices. The use of off-balance-sheet special purpose entities to conduct securitization and manufacture Collateralized Debt Obligations (CDOs), while not grounded in financial theory, drew support from the techniques’ affinities to established risk management practices. The shifting organizational locus of securitization that came with CDOs, however, would have important implications for how the assets were evaluated.