This paper analyzes the risk-taking behavior of financial intuitions that have guarantees (e.g., banks with deposit insurance or Government Sponsored Enterprises with implicit guarantees) and/or institutions that find it beneficial to develop a reputation for not taking risk. For instance, banks...

This paper models the optimal riskiness of structured securitization deals. The deals are put together by “banks” that hold an equity piece of the deal and can exercise strategic options over the risk put into the deals. The banks face a tradeoff between the benefits of risk-taking now and...