Risk Averse Banks and Uncertain Correlation Values: A Theory of Rational Bank Panics

Alan Morrison

No 2000-FE-08, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We present a model for Financial fragility in which banks are risk-averse portfolio managers and there is uncertainty over risk management parameters. There is a danger of heightened risk aversion and projects in small economies are assumed to be riskier than those in large economies. In this situation there is a danger that a rise in project correlations will lead to a rational but unnecessary credit crunch. We conclude firstly that greater transparency in the dissemination of correlation parameters is desirable and secondly that regulators should respond to heightened financial fragility by relaxing capital adequacy requirements.

Keywords: Banking; systemic risk; financial fragility; panics; capitcal adequacy; bank regulation; risk management; Value at Risk (search for similar items in EconPapers)
JEL-codes: C72 G21 G28 (search for similar items in EconPapers)
Date: 2000-12-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:6445277b-1128-4d3b-bdbf-568c97d1ded8 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:2000-fe-08

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).