A comprehensive view on risk reporting: Evidence from supervisory data

We show that banks' risk exposure in one asset category affects how they report regulatory risk weights for another asset category. Specifically, banks report lower credit risk weights for their loan portfolio when they face higher risk exposure in their trading book. This relationship is especially strong for banks that have binding regulatory capital constraints. Our results suggest the existence of incentive spillovers across different risk categories. We relate this behavior to the discretion inherent in internal ratings-based models which these banks use to assess risk. These findings imply that supervision should include a comprehensive view of different bank risk dimensions.

• Publication year

  2018

• Venue

  Journal of Financial Intermediation

• Publication date

  2018-10-01

• Fields of study

  Business, Economics

• Identifiers
  DOI 10.1016/J.JFI.2018.03.001
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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