Banks act as maturity transformers, who take liquid deposit and invest in illiquid assets. In this classical framework, we introduce uncertainty in the asset returns. We show that banks can insure individuals against the risk of illiquidity at the cost of increasing the riskIness of their...

In this paper we develop an improvement on one of the more popular methods for Value-at-Risk measurement, the historical simulation approach. The procedure we employ is the following: First, the density of the return on a portfolio is estimated using a non-parametric method, called a Gaussian...

This paper analyses the risk and return of loans portfolios in a joint setting. I develop a model to obtain the distribution of loans returns. I use this model to describe the investment opportunity set of lenders using mean-variance analysis with a Value at Risk constraint. I also obtain closed...

This paper verifies the impact of equity portfolio on bank management, underscoring the importance of managing the risks involved and suggesting "management of sensitivity to equity price risk" as a risk management technique that takes into account the correlation between equity price risk and...

The common practice for managing the credit risk of lending portfolios is to the calculate the maximum loss within the "value at risk" framework. Most financial institutions use large-scale Monte Carlo simulations to do this. However, such simulations may impose heavy calculation loads. This...

The outbreak of the financial crisis caused many banks worldwide to come under pressure, forcing them to rethink their business models. This analysis shows the shrinking of German banks' balance sheet items that are related to non-residents. It is illustrated that up to and into spring 2010 the...

The paper augments the asymmetric information literature on bank lending to new ventures by focusing on the more neglected area of moral hazard; specifically the relationship between risk aversion, an entrepreneur?s wealth and the provision of collateral. The results highlight some interesting...

According to the MiFID, financial intermediaries are requested to assess the suitability of the products they sell to retail clients. One of the main problems in the practical implementation of the MiFID suitability rule stems from omission or impreciseness of the questions specifically...

This paper examines how banks around the world have resized and reallocated their earning assets in response to the subprime and sovereign debt crises. We focus especially on the interaction between sovereign debt and the bank asset allocation process. After the crisis we observe a general...