Internal Capital Market Studies in Empirical Banking: Biases Due to Usage of Assets Instead of Risk Capital?

Posted: 29 Jan 2014 Last revised: 28 Jun 2019

See all articles by Markus Glaser

Markus Glaser

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Jan Riepe

University of Tuebingen - Department of Banking

Date Written: December 13, 2014

Abstract

Unlike industrial companies, banks allocate "risk-taking potential" across subunits, instead of investment budgets or assets. Researchers typically do not have access to this data on risk-bearing capacity across subunits and use (changes in) assets or loans instead. Based on unique data from Germany, where banks disclose both assets and corresponding risk capital, we analyze whether the approximation potentially introduces an econometric bias in empirical banking studies on internal capital markets. We provide empirical evidence that the quality of the approximation is correlated with variables capturing the risk and business models of segments.

Keywords: Internal Capital Allocation, Banks, Segmental Reporting, Risk Weighted Assets

JEL Classification: G21, G31, M41

Suggested Citation

Glaser, Markus and Riepe, Jan, Internal Capital Market Studies in Empirical Banking: Biases Due to Usage of Assets Instead of Risk Capital? (December 13, 2014). Finance Research Letters, Vol. 11, No. 1, 2014, Available at SSRN: https://ssrn.com/abstract=2386759 or http://dx.doi.org/10.2139/ssrn.2386759

Markus Glaser (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstraße 4
Munich, 80539
Germany

Jan Riepe

University of Tuebingen - Department of Banking ( email )

Nauklerstr. 47
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

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