Thrifts- Savings and loans
Long term mortgages backed by short term savings deposits (helped by the yield curve) after 1979 different Fed targets: Disintermediation, Regulation Q, DIDMCA, DIA, Regulatory Forbearance.
Balance sheet and underwriting risk
Loss risk>>>predictability: Property (more) vs. liability (less predict) Serverity vs frequency, long tail(claims later) Versus short tail, product inflation versus social infl, loss ration (losses/premiums)
Interest rate risk
the risk incurred by an FI when the maturity of its assets and liabilities are mismatched
The risk that the cost of rolling over or re borrowing funds will rise above the returns being earned on asset investments.
the risk that the returns on funds to be reinvested will fall below the cost of funds
Market Value Risk
As interest rates rise market value of assets or liabilities will fall. Moreover, mismatching maturities by holding longer term assets than liabilities implies when rates rise assets MV fall more than liabilities. This could lead to economic loss and insolvency.
The risk incured in the trading of assets and liabilities due to changes in interest rates, exchange rates, and other asset prices.
The risk that the promised cash flows from loans and securities held by FI's may not be paid in full. Those FI's with long-term maturities are more exposed, default of borrower puts both the principal and the interest payments at risk
Off Balance Sheet Risk
The risk incurred by an FI due to activities related to contingent assets. While all FI's to some extent, engage in off-balance-sheet activities, mostly larger banks have drawn attention.
Economies of scope
the degree to which an FI can generate cost synergies by producing multiple financial services products.
Foreign Exchange Risk
The risk that exchange rate changes can affect the value of an FI's assets and liabilities located abroad. If a U.S. FI is net long in foreign currency denominated assets, any depreciation of the foreign currency against the US dollar would lead to a loss for the U.S. FI. If a net short position prevails, then an appreciation of the foreign currency would lead to a loss.
Country and sovereign Risk
the risk that repayments from foreign borrowers may be interrupted because of interference from foreign governments.
The risk that a sudden surge in liability with drawls may leave an FI in a position of having to liquidate assets in a very short period of time and at low prices. (Fire-Sale) (RUN!) The risk of loss of ability to borrow in the interbank-market to finance assets (Sub-prime crisis)
Not having enough capital to offset a decline in asset values.