We investigate financial intermediaries' interest rate risk management as the simultaneous decision of on-balance-sheet exposure and interest rate swap use. Our findings show that both decisions are substitute risk management strategies. A higher likelihood of bank distress makes banks reduce...

In measuring its Operational Risk VaR, a bank needs to pay attention when including external data in its internal loss collection. In principle, these data should be scaled consistently to the specific nature of the bank's risk, but this is not done by the majority of institutions with advanced...

This paper adopts a dynamic contracting framework to study the design of prudential regulation of a bank engaging in excessive risk-taking. The bank's manager can enhance short term profits by either exerting effort or taking on excessive risk, which increases the bank's exposure to tail risk....

We investigate the valuation risk affecting financial instruments classified as L2 and L3 for accounting purposes. These are instruments that are not directly traded in active markets and are often relatively complex, opaque and illiquid. There is a huge volume of L2 and L3 instruments in the...

Using supervisory data from large U.S. bank holding companies (BHCs), we document that BHCs suffer more operational losses during episodes of extreme storms. Among different operational loss types, losses due to external fraud, BHCs' failure to meet obligations to clients and faulty business...

German savings and cooperative banks use credit risk pooling transactions as a specific type of synthetic credit risk transfer. This paper describes the effect of pro rata credit risk pooling transactions on the granularity of these banks’ credit portfolios. The change in granularity is...

Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Changes in interest rates affect a bank's earnings by changing its net interest income and also affect the underlying value of the bank's assets, liabilities and off-balance sheet...

We investigate financial intermediaries’ interest rate risk management as the simultaneous decision of on-balance-sheet exposure and interest rate swap use. Our findings show that both decisions are substitute risk management strategies. A higher likelihood of bank distress makes banks reduce...