What do we mean by risk in relation to financial institutions? Financial institutions choose the level of risk that maximizes the objectives of those who run them, subject to constraints and penalties imposed by those who regulate them and by capital markets. If the incentives of managers are...

<DIV><DIV><P>Until about twenty years ago, the consensus view on the cause of financial-system distress was fairly simple: a run on one bank could easily turn to a panic involving runs on all banks, destroying some and disrupting the financial system.  Since then, however, a series of events—such as...</p></div></div>