When gambling for resurrection is too risky

Divya Kirti

Journal of Banking & Finance, 2024, vol. 162, issue C

Abstract: The financial crisis pushed some large life insurers to the brink of insolvency. Instead of gambling for resurrection, insurers in severe distress pulled back from risk taking. They systematically reduced risk appetite relative to insurers with low default probabilities across many jointly available individual incremental investment opportunities. Importantly, as insurers in distress reduced risk even within investment opportunities with identical treatment, regulatory constraints alone cannot explain these findings. This evidence suggests that franchise value can make gambling for resurrection too risky, even following severe shocks to large financial institutions' solvency. Actions that clarify future prospects, like stress tests, may be needed to support risk appetite during crises.

JEL-codes: G21 G22 G28 G32 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: When gambling for resurrection is too risky (2018)
Working Paper: When Gambling for Resurrection is Too Risky (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:162:y:2024:i:c:s0378426624000451

DOI: 10.1016/j.jbankfin.2024.107125

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