Under the new Capital Accord, banks choose between two different types of risk management systems, the standard or the … internal rating based approach. The paper considers how a bank's preference for a risk management system is affected by the … presence of supervision by bank regulators. The model uses a principal-agent setting between a bank's owner and its risk …

We study the dependence between the downside risk of European banks and insurers. Since the downside risk of banks and … insurers differs, an interesting question from a supervisory point of view is the risk reduction that derives from … of the risk distribution. This measure is estimated and indicates better diversification benefits for conglomerates …

rationale behind the bans was that "bear raids", driven by short-sellers, would increase the individual and systemic risk of … financial institutions, especially for institutions with high leverage. This study uses Extreme Value Theory to estimate the … specifically target institutions with lower capital levels. Furthermore, institutions' risk-levels and changes in short …

assessed. We propose a novel framework to assessfinancial system risk. Using a dynamic factor framework based on state …-space methods, we model latent macro-financial and credit risk components for a large data setcomprising the U.S., the EU-27 area … risk conditions can significantly and persistently de-couplefrom macro-financial fundamentals. Such decoupling can serve as …

important for credit risk management as well as for regulation and systemic risk management. In this paper, we use 1927-1997 U …

Can the risk of losses upon premature liquidation produce bank runs? We show how a unique run equilibrium driven by … asset liquidity risk arises even under minimal fundamental risk. To study the role of illiquidity we introduce realistic … not available in a run, asset liquidity risk has a concave effect on run incentives, quite unlike fundamental risk. Runs …

We use a classic Merton credit risk framework to argue that Islamic Banking Institutions (IBIs) face less incentive to … take on risks than Conventional Banking Institutions (CBI). IBIs have less incentive for risk shifting both in and outside … analysis suggests that the loss absorption capacity of Islamic banks leads to less risk taking and a more stable banking system. …

I analyze welfare properties of mutual funds in the Diamond-Dybvig model with two sources of aggregate risk …: undiversifiable interest rate risk and shocks to aggregate liquidity demand. Mutual funds are inefficient when the economy faces … undiversifiable interest rate risk. However, if only aggregate liquidity demand is stochastic, mutual funds can implement the social …