Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 441: Bank fragility and the incentives to manage risk
Toni Ahnert, Christoph Bertsch (), Agnese Leonello and Robert Marquez
Additional contact information
Toni Ahnert: European Central Bank
Christoph Bertsch: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Agnese Leonello: European Central Bank
Robert Marquez: University of California, Davis
Abstract: Shocks to banks’ ability to raise liquidity at short notice can lead to depositor panics, as evidenced by recent bank failures. Why don’t banks take a more active role in managing these risks? In a standard bank-run model, we show that risk management failures are most prevalent when exposures are more severe and managing risk would be particularly valuable. Bank capital and deposit insurance coverage act as substitutes for risk management on the intensive margin but as complements on its extensive margin, encouraging the adoption of risk management operations. We provide insights for the appropriate regulation of bank risk-management operations.
Keywords: Banking crises; depositor withdrawals; asset valuations; risk management
Language: English
67 pages, September 1, 2024
Full text files
no.-441-bank-fragili...s-to-manage-risk.pdfFull text
Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:rbnkwp:0441This page generated on 2024-10-07 14:35:47.