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This article provides an overview of operational approaches to risk in financial institutions along with a more specific look at risk in banking. The coverage includes traditional approaches to the subject and more recent developments such as the use of computer simulation models.

This paper utilizes out-of-sample forecasting experiments to examine whether the yield spread or returns on stock indices provide information content for future real activity in Italy, the UK, USA and Germany. A variable is said to provide information content if it improves the quality of the forecast for the forecasted variable. Four forecasting models containing yield spread and stock return variables are tested during the period 1961 to 1996. The usefulness of the yield curve and stock returns to predict GDP differs across countries and over time and neither variable is found to consistently provide information content for forecasting economic activity throughout the study period.

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