A Tale of Two Supervisors: Compliance with Risk Disclosure Regulation in the Banking Sector

70 Pages Posted: 20 Mar 2015 Last revised: 14 Jan 2020

See all articles by Jannis Bischof

Jannis Bischof

University of Mannheim - Accounting and Taxation

Holger Daske

University of Mannheim - Accounting and Taxation

Ferdinand Elfers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Luzi Hail

University of Pennsylvania - The Wharton School; European Corporate Governance Institute (ECGI)

Date Written: January 13, 2020

Abstract

This paper examines how a regulatory design with multiple supervisory agencies translates into firm-level compliance in form and substance with disclosure regulations. We exploit the fact that banks are subject to equivalent risk disclosure rules under securities laws (IFRS 7) and banking regulation (Pillar 3 of the Basel II accord), but that different regulators start enforcing the rules at different points in time. We find that banks substantially increase their formal risk disclosures upon the adoption of Pillar 3 even if they already had to comply with the same requirements under IFRS 7. Regulators facing stronger institutional competition and with more supervisory powers and resources are stricter in imposing the written rules while, in turn, firms fearing regulatory scrutiny or market pressures are more forthcoming in following the rules. However, formal compliance with the disclosure requirements does not necessarily convert into more transparent reporting. Liquidity and returns-based tests show that the materiality of the enhanced risk disclosures for investors was concentrated around Pillar 3 adoption and associated with the content of certain disclosure items.

Keywords: Disclosure regulation, Risk disclosures, Liquidity, Financial institutions, Market supervision, IFRS, Basel II, International accounting

JEL Classification: F30, G21, G28, K22, M41

Suggested Citation

Bischof, Jannis and Daske, Holger and Elfers, Ferdinand and Hail, Luzi, A Tale of Two Supervisors: Compliance with Risk Disclosure Regulation in the Banking Sector (January 13, 2020). Available at SSRN: https://ssrn.com/abstract=2580569 or http://dx.doi.org/10.2139/ssrn.2580569

Jannis Bischof

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Holger Daske

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Ferdinand Elfers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Luzi Hail (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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