Tag: Risk Arbitrage

Is Your Bank Getting Properly Compensated for Lending Risk?

Risk Arbitrage in Lending

A “pay-for-risk” model means that the goal of the business is to price risk at a premium so your revenue covers the risk and leaves you with an acceptable profit. If you believe that the business of banking is a pay-for-risk model, then we have some bad news for the current state of banking.  The mature economic expansion is not a good time for bankers who expect to be rationally compensated for the risk they take.

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