The problem often begins with banks taking excessive exposure (concentration) to a particular sector or sectors, the corporate increasing their leverage manifold and investing in creating excess capacities. Unraveling of the risks could perhaps still be managed if the banks’ capital positions were strong, but if that is not the case, risk manifests itself in all its dimensions.
4  BIS Review 118/2010  At first glance, then, it is not at all clear that structural modifications to the basic G-M approach would be preferable to the proposal as they have described it. Options that depart from the G-M approach would need to find different ways of solving the information problems that G-M identify.