We present a model where bank assets are a portfolio of risky debt claims and analyze stockholders' risk …-taking behavior while considering the strategic interaction between debtors and creditors. We find that: (1) as the leverage of a bank … increases, risk shifting by borrowers increases, even if their leverage is unchanged (zombie lending). (2) While the literature …

measures. Contrary to the subadditivity assumption, bank mergers can create extra risk. We begin with an analysis how a merger …This paper provides a critical analysis of the subadditivity axiom, which is the key condition for coherent risk … affects depositors, junior or senior bank creditors, and bank owners. Next it is shown that bank mergers can result in higher …