Risk Targeting and Policy Illusions - Evidence from the Announcement of the Volcker Rule

50 Pages Posted: 16 Jul 2014 Last revised: 12 Jun 2016

Jussi Keppo

National University of Singapore - NUS Business School

Josef Korte

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: June 12, 2016

Abstract

We analyze the Volcker Rule's announcement effects on U.S. bank holding companies. In line with the rule and the banks' public compliance announcements, we find that those banks that are affected by the Volcker Rule already reduced their trading books relative to their total assets 2.34% more than other banks. However, the announcement of the rule did not reduce the banks' overall risk-taking. To keep their risk targets, the affected banks raised the riskiness of their asset returns. We also find some evidence that the affected banks raised their trading risk and decreased the hedging of their banking business.

Keywords: Volcker Rule, proprietary trading, trading book, banking book, hedging, bank regulation

JEL Classification: G21, G24, G28

Suggested Citation

Keppo, Jussi and Korte, Josef, Risk Targeting and Policy Illusions - Evidence from the Announcement of the Volcker Rule (June 12, 2016). Available at SSRN: https://ssrn.com/abstract=2466477 or http://dx.doi.org/10.2139/ssrn.2466477

Jussi Keppo (Contact Author)

National University of Singapore - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

Josef Korte

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
713
rank
32,054
Abstract Views
2,828
PlumX