In the Eye of the Beholder: Regulatory Versus Industry Risk Perception

Abstract

Is the perception of risk, as outlined and defined by the regulatory and supervisory community, shared by private financial institutions? In this paper we assess a representative sample of recent publicly available risk perspectives and outlooks, and study similarities and differences. We find that for established (traditional) risk themes there is relatively greater consensus between regulators and industry participants. However, for emerging risk themes, we find a divergence in perspectives between industry and regulators and, at times, even within each group. We discuss this spectrum of risk perspectives, as well as approaches to mitigate the resulting “risk-gap” between the regulators and the industry.

Keywords: Risk Themes, Risk Gap, Risk Disclosures, Regulation

JEL Classification: G18, G32, H11