Search results for "Risk Management"
showing 10 items of 294 documents
Stress test impact and bank risk profile: Evidence from macro stress testing in Europe
2019
Abstract This study investigates the risk profile of banks that get a significant capital level reduction in the EU-wide stress test exercises. Using the CAMELS multifaceted risk approach, we look into the connection between the bank risk factors and the macro stress testing impact on capital. The results show that financial institutions that are inefficient or complex, with low profitability levels and small loan portfolio, receive highly negative results in the stress tests. As this risk profile is not consistent over time, the results support the stress tests disciplinary role, suggesting risk management strategy adjustment through consideration of prior stress test outcomes.
Market risk disclosure in banking: an empirical analysis on four global systemically important European banks
2017
Market risk reporting in banking has assumed such importance during the last decade. The purpose of this paper is to provide a methodology to evaluate the qualitative and quantitative profiles of the market risk disclosure in banking. We propose a hybrid methodology to assess whether or not banks are able to provide a satisfactory degree of information about the market risks they are exposed to. In this paper, we conduct an empirical research of market risk disclosure on a sample of four global systemically important European banks. The paper provides evidences that banks differ in their market risk reporting models, even though they are subject to similar regulatory requirements and accoun…
How to measure bank credit risk disclosure? Testing a new methodological approach based on the content analysis framework
2020
AbstractRisk disclosure is a crucial factor in enhancing the efficiency of financial markets and promoting financial stability. This paper proposes a methodological tool to analyze credit risk disclosure in bank financial reports, based on the content analysis framework. The authors also uses this methodology to carry out an empirical study on a small sample of large Italian banks. The paper provides preliminary empirical evidence that banks differ in their credit risk disclosure, even though they are subject to homogeneous regulatory and accounting requirements. Furthermore, by carrying out a correlation-based network analysis, the paper provides preliminary evidence on the existence of a …
Credit derivatives disclosure in banks’ risk reporting: Empirical evidence from four large European banks
2019
This paper aims to analyze the derivatives disclosure in banks’ annual risk reports. In this paper, the author uses content analysis to examine the qualitative and quantitative profiles of the derivatives disclosure at a cross-country level, with particular reference to credit derivatives. The empirical research is conducted on a sample of large European banks. The paper also shows that there is room to improve various aspects of derivatives disclosure, and provides some useful insights for further research. The derivatives disclosure in banks’ annual risk reports has deep managerial, financial, regulatory and accounting implications at a firm and industry levels, and the comprehension of t…
Forecasting industry sector default rates through dynamic factor models
2008
In this paper we use a reduced-form model for the analysis of portfolio credit risk. For this purpose, we fit a dynamic factor model to a large data set of default rate proxies and macro-variables for Italy. Multiple step ahead density and probability forecasts are obtained by employing both the direct and indirect methods of prediction together with stochastic simulation of the dynamic factor model. We first find that the direct method is the best performer regarding the out-of-sample projection of financial distressful events. In a second stage of the analysis, we find that reducedform portfolio credit risk measures obtained through the dynamic factor model are lower than those correspond…
Entrepreneurship insolvency risk management: a case of Latvia
2011
Financial crisis and its consequences are visible in the capital adequacy of many commercial banks, which indicates that the approach banks took to assess credit risk was not sufficiently sophisticated. This article discusses practical methods of insolvency risk modelling for enterprises. In this paper, the authors analysed the accuracy of ten models developed by foreign authors to assess insolvency risk, which were validated on the database of Latvian companies. The authors have shown that models developed on historical data for foreign companies are less accurate than the model developed on the basis of financial indicators of Latvian companies. The authors developed a three-factor model …
The Role of Capital and Liquidity in Bank Lending: Are Banks Safer?
2020
The aim of this paper is to examine whether and to what extent bank capital requirements and liquidity standards influence the level of bank stability. Our approach is that both capital and liquidity affect lending growth, which in turn affects bank stability. We construct a panel dataset on a sample of 2,054 commercial banks from 117 developed and developing countries during the 2000–16 period. By applying a two-stage least squares (2SLS) empirical methodology, our findings show that capital and liquidity have a negative direct impact on the level of bank stability. However, this influence is counteracted by an indirect positive effect through the increased level of credit. Our results are…
The role of roles in risk management change: the case of an Italian bank
2014
This paper explores the role of roles (i.e. groups of actors characterised by the same functional tasks within an organisation), and of their interactions, within processes of change in risk management (RM). By combining insights from the literature on RM and from institutional studies, this paper suggests that change in RM can be interpreted as a process that involves both enabling and precipitating dynamics [Greenwood, R., & Hinings, C. R. (1996). Understanding radical organizational change: Bringing together the old and the new institutionalism. The Academy of Management Review, 21, 1022â1054. doi:10.5465/AMR.1996.9704071862] between different roles. Aiming to address these dynamic…
Automatic Balance Mechanisms in Pay-As-You-Go Pension Systems
2009
This paper shows the usefulness of the automatic balance mechanisms (ABMs) and explores the issue of introducing an ABM into the Spanish public contributory retirement pension system. We define the concept of the automatic balance mechanism and carry out an analysis of those existing in Sweden, Canada, Germany, Japan and Finland. We also present an indicator of the Spanish system's solvency which emerges from the actuarial balance sheet, and simulate the effect that certain changes in the parameters of the present system would have on solvency, showing the direction that could be taken if the mechanism were to be introduced in Spain. The main conclusion reached is that, given the system's s…
Operational risk in bank governance and control: How to save capital requirement through a risk transfer strategy. Evidences from a simulated case st…
2015
Operational risk management in banking has assumed such importance during the last decade. It has become increasingly important to measure, manage, and assess the impact of operational risk in the economics of banking. The purpose of this paper is to demonstrate how an effective operational risk management provides mitigating effects on capital-at-risk in banking. The paper provides evidences that an implementation of an operational risk transfer strategy reduces bank capital requirement. The paper adopts the loss distribution approach, the Monte Carlo simulation, and copula methodologies to estimate the regulatory capital and simulate an operational risk transfer strategy in banking.