Bank Fragility and Risk Management

Toni Ahnert, Christoph Bertsch, Agnese Leonello and Robert Marquez

No 19523, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Shocks to a bank’s ability to raise liquidity at short notice can trigger depositor panics. Why don’t banks take a more active role in managing these risks? We study contingent risk management (hedging) in a standard global-games model of a bank run. Banks fail to hedge precisely when the exposure to a shock is most severe, just when risk management would have the biggest impact. Higher bank capital and broader deposit-insurance coverage crowd out hedging, yet encourage more banks to establish risk management desks in the first place. The model also yields testable implications for hedging incentives and policy design.

Keywords: Bank runs; Liquidity risk; Hedging (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 (search for similar items in EconPapers)
Date: 2024-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19523 (application/pdf)

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:cpr:ceprdp:19523

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19523

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().