Bank's Assets and Liabilities Management with Multiple Sources of Risk

Thilo Pausch (thilo.pausch@bundesbank.de)

No 245, Discussion Paper Series from Universitaet Augsburg, Institute for Economics

Abstract: The industrial organization approach to banking is applied to analyze theeffects of the introduction of joint credit and interbank rate risk on the optimaldecisions on deposits and loans of a competitive bank. It is found that dueto the introduction of both sources of risk there appear direct effects as wellas portfolio effects which jointly determine changes in the bank’s behavior.Moreover, it is shown that there is an interaction between the effects of theintroduction of risk and economies or diseconomies of scope in the bank’sbusiness which determines the extend of behavioral changes.

Keywords: bank; risk; risk aversion; decisions with multiple sources of risk (search for similar items in EconPapers)
JEL-codes: D21 D81 G21 (search for similar items in EconPapers)
Date: 2003-07
New Economics Papers: this item is included in nep-cfn and nep-rmg
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