How dark is the dark side of diversification?

Purpose This paper aims to illustrate, within the context of a well-known linear diversification model, that risk management as exerted by banks and regulators ultimately depends on how is assessed conceptualized. The two metrics used are probability bank failure value at (VaR). also extends results model incorporating an explicit analysis correlation bank's portfolios. Design/methodology/approach based banking institutions developed Wagner (2010) in Journal Financial Intermediation. authors added considerations were unexplored derived corresponding logical practical implications. Findings found depending which being used, way perceived managed may differ. situation very well end-up generating different incentives for regulators. suggest general rationale considering think about apparent dilemma challenges faced offer Research limitations/implications dependent particular aspects so research lack generality other contexts. Practical implications Despite limitations already mentioned, illustrates some relevant points open debate measurement diversification. Originality/value contributes discussion diversification, perception systemic crisis.