The Strategic Underreporting of Bank Risk

• 成果类型: Article
• 署名作者: Begley, Taylor A.; Purnanandam, Amiyatosh; Zheng, Kuncheng
• 署名单位: University of London; London Business School; Washington University (WUSTL); University of Michigan System; University of Michigan; Northeastern University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhx036
• 发表日期: 2017
• 页码: 3376
• 关键词: liquidity shocks evidence; emerging market; CRISIS

摘要

We show that banks significantly underreport the risk in their trading book when they have lower equity capital. Specifically, a decrease in a bank's equity capital results in substantially more violations of its self-reported risk levels in the following quarter. Underreporting is especially frequent during the critical periods of high systemic risk and for banks with larger trading operations. We exploit a discontinuity in the expected benefit of underreporting present in Basel regulations to provide further support for a causal link between capital-saving incentives and underreporting. Overall, we show that banks' self-reported risk measures become least informative precisely when they matter the most.