We examine risk taking when the bank's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second …-order probability distribution that captures the bank's uncertainty about which of the subjective beliefs govern the financial asset … the case of greater ambiguity aversion. Given that the competitive bank's smooth ambiguity preferences exhibit non …

The paper revisits the impact of uncertainty on the decision problem of a bank. The bank extends risky loans to private … is endogenized through an information system that conveys public signals about the return distribution of bank loans … raises expected bank profits, but may lead to a higher or lower expected loan volume. Moreover, higher transparency may …