How Do Banks React to Increased Asset Risks? Evidence from Hurricane Katrina by Claudia Lambert, Felix Noth, Ulrich Schuewer :: SSRN:
Two takeaways:
Banks increase risk-based capital ratios in times of great uncertainty.
The increase comes largely from well capitalized banks and by reducing loans.
From the Abstract:
"[We] find that banks in the disaster areas increase their risk-based
Diversifcation: good but not as good as you probably think
Index cohesive force (Photo credit: Wikipedia)
For years (at least since 2001) this idea has been a
mainstay in my classes. The benefits of diversification have been
overstated. Why? The correlations that are used to diversify and get
the so called optimal portfolio change and the change is NOT in a random format:
the correlations go up in bad times.
The Physics of Finance: Why
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