Final answer:
Banks take on the risk of asset-liability time mismatch and loan defaults, which can affect their profitability.
Step-by-step explanation:
One risk that banks take on is the asset-liability time mismatch. This occurs when customers can withdraw bank liabilities, such as deposits, in the short term, but the bank's assets, like loans and bonds, are repaid in the long term. This can cause problems for the bank if customers withdraw funds quickly while borrowers take longer to repay their loans.
Another risk is the level of loan defaults. Banks expect a certain percentage of borrowers to not repay their loans, and they factor this into their planning. However, if the number of loan defaults is higher than expected, it can significantly impact the bank's profitability.