Banks as delegated risk managers

Hendrik Hakenes

No 03-13, Papers from Sonderforschungsbreich 504

Abstract: Risk management, although of major importance in the banking industry in practice, plays only a minor role in the theory of banking. We reduce this gap by putting forward a model in which risk managers - specialists that can find out correlations between risky assets - endogenously take over typical functions of banks. They grant loans, they consult on financial questions with firms that are threatened by bankruptcy, and they sign tailor-made hedge transactions with these firms. Delegation costs are innately low if banks assume the function of risk managers in an economy. Risk management can be seen as a core competence of banks.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:mnh:spaper:2771

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