Financial crises, bank losses, risk management and audit: what happened?

This article discusses some of the highly topical issues linked to financial crises, bank losses and audit. In addition to a theoretical discussion of the recent bank losses and financial turmoil, our analysis of a 10-question questionnaire indicates, as in the work of Stonham (1996), strong evidence of auditing weaknesses and erroneous management decisions that explain such bank losses. Our analysis also highlights the fact that trading and arbitrage are riskier and more hazardous during periods of crises.