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 (unrealised losses on held-to-maturity investments) and liquidity risk (significant deposit withdrawals due to clients’ risk aversion as well as much higher interest rates being offered by money-market alternatives). 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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