A Comprehensive View on Risk Reporting: Evidence from Supervisory Data

40 Pages Posted: 10 May 2018

See all articles by Puriya Abbassi

Puriya Abbassi

Deutsche Bundesbank

Michael Schmidt

Deutsche Bundesbank; Goethe University Frankfurt

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

Abstract

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.

Keywords: internal ratings-based regulation, credit risk, market risk, incentive spillovers, capital regulation, comprehensive risk assessment

JEL Classification: G01, G21, G28

Suggested Citation

Abbassi, Puriya and Schmidt, Michael, A Comprehensive View on Risk Reporting: Evidence from Supervisory Data (2018). Deutsche Bundesbank Discussion Paper No. 08/2018, Available at SSRN: https://ssrn.com/abstract=3176436

Puriya Abbassi (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
00496965993708 (Phone)

Michael Schmidt

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 4
Hauspostfach 64
Frankfurt, 60629
Germany

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