The business model of a bank inherently entails the maturity transformation of deposits. Put differently: banks borrow in the short term to lend for the long term. This foundational principle exposes a bank to four risks that could imperil its solvency: credit risk, market risk, liquidity risk and operational risk.
The stresses the US banking system is now experiencing can be attributed to the interplay between market risk and liquidity risk . Credit Suisse’s troubles are attributable to the mismanagement of all four of these fundamental risks. With bank stocks around the globe taking a hit, are there attractive opportunities in the sector now? Let’s look at some candidates: ..
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