In the recent financial crisis, risk management tools have been proven inadequate. Model risk, a key component of bank … risk, has shown its negative impact. It seems that risk models did not cover the included risks comprehensively and were … their models to reduce model risk. We discuss if banks undertake enough effort to improve their risk models. Furthermore …

unambiguously leads to higher risk-taking at those banks that do not enjoy a bail-out guarantee. The reason is that the prospect of … other banks’ margins. In contrast, the effects on the protected bank’s risk taking and on welfare depend on the …

analyzes how compensation schemes change in reaction to anticipated bail-outs. If there is a risk-shifting problem, bail …-out expectations lead to steeper bonus schemes and even more risk-taking. If there is an effort problem, the compensation scheme …

regulatory policy during crises. In our model, a bank can increase the risk of its asset portfolio (“risk shift”), convert bank … regulation may increase looting, and in extreme cases even risk shifting. Looting penalties reduce both looting and risk-shifting. …

We analyze capital requirements if banks compete for loans and deposits. Banks and firms are subject to a risk …-shifting problem. The ambiguous effect of competition on banks’ risk-taking translates into an ambiguous effect of capital requirements …

In the recent financial crisis, risk management tools have been proven inadequate. Model risk, a key component of bank … risk, has shown its negative impact. It seems that risk models did not cover the included risks comprehensively and were … their models to reduce model risk. We discuss if banks undertake enough effort to improve their risk models. Furthermore …