Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246119 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 12/2020
Publisher: 
Norges Bank, Oslo
Abstract: 
This paper investigates how balance sheet opacity affects banks' risk-taking behavior. We measure bank balance sheet opacity according to two metrics: the ratio of available-for-sale (AFS) securities and the ratio of off-balance sheet items. We show that balance sheet opacity is positively correlated with realized bank risk. Specifically, banks with more AFS securities have lower realized risk, while banks with more off-balance sheet items have higher realized risk. The correlation between opacity and risk depends on both macroeconomic variables and bank characteristics. The positive relationship between bank opacity and bank risk is weaker for better capitalized banks and banks that are subject to more market discipline. The relationship is also weaker during periods of favorable market conditions. Motivated by this analysis, we then investigate how regulation affects bank opacity. We show that higher capital requirements reduce bank opacity and bank risk through a portfolio rebalancing channel.
Subjects: 
Opacity
Transparency
Available-for-sale securities
Off-balance sheet items
Risktaking
JEL: 
G21
G23
G28
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-166-2
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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