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Strategic Risk-Modelling by Banks: Evidence from Inside the Black Box

Время: 24 октября (Вторник) 15.00 МСК
Спикер: Elizaveta Sizova (NHH Norwegian School of Economics)
Название: Strategic Risk-Modelling by Banks: Evidence from Inside the Black Box

Область исследования
"This empirical work lies at the intersection of banking, risk management and regulation."

Какую проблему призвано решить ваше исследование?
"The big question is whether banks can be better regulated accounting for differences in the way they manage risk. This study focuses on model-based regulation of banks designed to accommodate these differences. The research aims to shed light on banks' risk-modelling choices and how these can affect the outcomes relevant for financial stability."

Что обнаружило ваше исследование?
"The main finding is that differences in banks' modelling choices drive differences in banks' own funds a.k.a. capital requirements for the risks they are taking. By making certain modelling choices, banks can therefore look safer than they are. This causes suboptimal outcomes and high economic costs in case of failure."

Абстракт: This paper investigates the strategic use of banks’ internal models for market risk. We study hand- collected data on modelling and disclosure choices and examine how they relate to banks’ reported levels of Value-at-Risk (VaR) and the number of VaR violations. We show that more elaborate internal modelling can correspond to higher VaR and more VaR violations being therefore unambiguously more punitive for banks in terms of capital requirements. At the same time, such modelling can be also more opaque and fail to assess risk more precisely than theoretically more inferior modelling. We conclude that capital requirements for market risk are compromised by strategic modelling, and show how the degree of distortion depends on specific modelling choices.

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