Regulation and Risk Shuffling in Bank Securities Portfolios

44 Pages Posted: 15 Jun 2018

See all articles by Andreas Fuster

Andreas Fuster

Swiss National Bank - Financial Stability

James I. Vickery

Federal Reserve Bank of New York

Date Written: June , 2018

Abstract

Bank capital requirements are based on a mix of market values and book values. We investigate the effects of a policy change that ties regulatory capital to the market value of the "available-for-sale" investment securities portfolio for some banking organizations. Our analysis is based on security-level data on individual bank portfolios matched to bond characteristics. We find little clear evidence that banks respond by reducing the riskiness of their securities portfolios, although there is some evidence of a greater use of derivatives to hedge securities exposures. Instead, banks respond by reclassifying securities to mitigate the effects of the policy change. This shift is most pronounced for securities with high levels of interest rate risk.

Keywords: bank, securities, available-for-sale, capital regulation, fair value accounting

JEL Classification: G21, G23, G28

Suggested Citation

Fuster, Andreas and Vickery, James Ian, Regulation and Risk Shuffling in Bank Securities Portfolios (June , 2018). FRB of New York Staff Report No. 851, Available at SSRN: https://ssrn.com/abstract=3197365 or http://dx.doi.org/10.2139/ssrn.3197365

Andreas Fuster

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

James Ian Vickery (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
77
Abstract Views
474
rank
342,866
PlumX Metrics