Risk-Taking and Risk Management by Banks

Most people who do not work in business view risk as a bad thing, the possibility of unwanted outcomes. But risk-taking is of course an essential part of business activity; without a willingness to take risk there is generally very little expected reward. And banks-the subject of this article-have opportunities to take risks that have a positive expected payoff or reward when the opportunities are viewed on a stand-alone basis. We will refer to such risks throughout this paper as "good" risks.