Diversification through pooling and tranching securities was supposed to mitigate creditor runs in financial … institutions by reducing their credit risk, yet many financial institutions holding diversified portfolios experienced creditor … liquidity after an adverse shock and increases the probability of a panic run by creditors. We show that diversification, while …

Rather than taking on more risk, US insurers hit hard by the crisis pulled back from risk taking, relative to insurers … hit less hard by the crisis. Capital requirements alone do not explain this risk reduction: insurers hit hard reduced risk … within assets with identical regulatory treatment. State level US insurance regulation makes it unlikely this risk reduction …