Besancenot, Damien; Vranceanu, Radu - In: International Review of Economics & Finance 20 (2011) 4, pp. 784-791
Many observers argue that one of the major causes of the 2007-2009 recession was the abnormal accumulation of risk by banks. This paper provides a signaling explanation for this race for risk. If banks' returns can be observed while risk cannot, the less efficient banks can hide their type by...