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The Strategic Under-Reporting of Bank Risk

dc.contributor.authorPurnanandam, Amiyatosh K.
dc.contributor.authorZheng, Kuncheng (K.C.)
dc.contributorBegley, Taylor A.
dc.identifier.citationForthcoming Review of Financial Studies
dc.description.abstractWe show that banks significantly under-report 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. The under-reporting is especially high during the critical periods of high systemic risk and for banks with larger trading operations. We exploit a discontinuity in the expected benefit of under-reporting present in Basel regulations to provide further support for a causal link between capital-saving incentives and under-reporting. Overall, we show that banks' self-reported risk measures become least informative precisely when they matter the most.en_US
dc.subjectrisk-based capital requirementsen_US
dc.subjectrisk measurementen_US
dc.subjectsystemic risken_US
dc.titleThe Strategic Under-Reporting of Bank Risken_US
dc.typeWorking Paperen_US
dc.contributor.affiliationumRoss School of Businessen_US
dc.contributor.affiliationotherLondon Business Schoolen_US
dc.contributor.affiliationotherNortheastern University - D’Amore-McKim School of Business
dc.contributor.affiliationumcampusAnn Arbor
dc.description.filedescriptionDescription of 1260_Purnanandam_Sept2016.pdf : September 2016 revision
dc.description.filedescriptionDescription of 1260_Purnanandam_March2016.pdf : March 2016 revision
dc.description.filedescriptionDescription of 1260_Purnanandam_Apr2015.pdf : April 2015 revision
dc.description.filedescriptionDescription of 1260_Purnanandam_Sept2016_2.pdf : September 2016 revision (new)
dc.owningcollnameBusiness, Stephen M. Ross School of - Working Papers Series

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