Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334936 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3076
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
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 by banks that already manage risk, 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.
Subjects: 
Bank runs
liquidity risk
hedging
interim asset valuation
banking policy
risk management
financial risk
bank deposit
hedge funds
money-market liquidity
insurance
venture capital
report
JEL: 
G01
G21
G23
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7385-4
Document Type: 
Working Paper

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