Business cycles imply liquidity risks for banks. This paper explores how these risks influence bank lending over the cycle. With forward-looking banks, lending cycles, credit booms and busts, or suppressed and highly fragile bank systems can emerge, depending on the magnitude of liquidity risks....

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 not kept up-to-date by banks, and also rating agencies....