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Banks as delegated risk managers

  • Hakenes, Hendrik

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.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 28 (2004)
Issue (Month): 10 (October)
Pages: 2399-2426

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Handle: RePEc:eee:jbfina:v:28:y:2004:i:10:p:2399-2426
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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