The nature of banking is strongly related to the management and control of risks. This lecture gives an overview of the main risks to which banks are subject, namely interest rate risk/market risk, liquidity risk and credit risk, as well as broader systemic risks. We then examine economic issues relating to the core of banks' traditional business, namely on- balance-sheet lending. We focus in particular on the various ways in which banks seek to control the risks arising from their loan books. This discussion includes a brief assessment of issue of credit rationing which is an issue of both microeconomic and macroeconomic significance.