Textbooks say that banks transform risks: What are the risks involved? and how are they transformed?
Summary :
Table of Contents
- Introduction.
- Definition and management of the pure risks: Credits risk and liquidity risk.
- Definition and management of the speculative risks: Interest-rate risk, currency risk and market-risk.
- Conclusion.
- Bibliography.
Abstract
Financial crisis may be very damaging for the whole society, as bank failures can either lead to runs or to panic. Bank runs occurs when problems at a bank "undermine depositors' confidence." The depositors' reaction is to rush to withdraw their money since they know that the bank's reserves are limited and that there won't be enough cash for all the depositors, assuming they follow the same strategy. Nevertheless, banks run are limited to the bank involved and unlike panics they don't affect the whole economy. Indeed, banking panics paralyse the whole system in general and have severer consequences. Such a scenario happened in Argentina in 2001 following a confidence crisis in the Argentina's central bank.
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