Banks as Delegated Risk Managers
AbstractRisk 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.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 03-13.
Length: 29 pages
Date of creation: 11 Sep 2003
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Note: The author thanks Elena Carletti, Juliane Godehardt, Martin
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Other versions of this item:
- NEP-ALL-2005-03-06 (All new papers)
- NEP-CBA-2003-11-30 (Central Banking)
- NEP-RMG-2005-03-06 (Risk Management)
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