approach, and unsophisticated banks, eligible for the standardized approach, allocate their loan portfolio between high-risk … risk-taking, but encourage unsophisticated banks to increase risk-taking. The risk reallocation effects are stronger when …

banks do not use diversification to operate at a constant level of risk-return efficiency, which implies that banks are not … risk-return efficient. Moreover, we find that the impact of diversification strongly depends on the risk level. However …, only for moderate risk levels and in the case of industrial diversification does diversification significantly improve the …

Market liquidity is the ease of trading an asset. Its risk is the potential loss, because a security can only be traded … long remained a more or less elusive concept. Treatment of liquidity risk is still under development.This paper provides an … overview on important aspects of market liquidity and its risk. We also survey existing models to integrate market liquidity …

We examine the quantification of operational risk for banks. We adopt a financial-economics approach and interpret … operational risk management as a means of optimizing the profitability of an institution along its value chain. We start by defining … operational risk and then propose a framework to model risk mitigation through the bank’s value chain over time. Using analytical …

Economic cycles are the key credit portfolio risk driver and they are autocorrelated over time. We then show that it is … economically meaningful to define risk for credit portfolios in a multi period setup. Since one period expected shortfall fails to … measure risk adequately in a multi period context, we then extend the coherent expected shortfall to time-conditional expected …

We analyze optimal risk management strategies for a regulatory restricted bank financed with deposits and equity in an … franchise value and the liquidation costs in case of a bank run give the bank a motivation for risk management. The franchise …

regulatory capital charge for operational risk. Since the release of the document, the complexity of the concept of "operational … risk" has led to vigorous and recurring discussions. We show that for a production unit of a bank with well …-defined workflows operational risk can be unambiguously defined and modelled. The results of this modelling exercise are relevant for …