Bankers underestimate need to recapitalise: ECB paper


A European Central Bank paper published on Wednesday shows negative externalities associated with episodes of adverse shocks often leave market participants undercapitalised.

Anton Korinek, the paper's author, analyses the efficiency of risk-taking decisions in an economy that is prone to systemic risk by examining the financial amplification effects that occur in response to strong adverse shocks. Korinek says a negative aggregate shock often forces bankers to sell some of their asset holdings

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