Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/178501
Authors: 
Abbassi, Puriya
Schmidt, Michael
Year of Publication: 
2018
Series/Report no.: 
Bundesbank Discussion Paper No. 08/2018
Abstract: 
We show that banks' risk exposure in one asset category affects how they report regulatory risk weights for another asset category. Specifically, banks report lower credit risk weights for their loan portfolio when they face higher risk exposure in their trading book. This relationship is especially strong for banks that have binding regulatory capital constraints. Our results suggest the existence of incentive spillovers across different risk categories. We relate this behavior to the discretion inherent in internal ratings-based models which these banks use to assess risk. These findings imply that supervision should include a comprehensive view of different bank risk dimensions.
Subjects: 
internal ratings-based regulation
credit risk
market risk
incentive spillovers
capital regulation
comprehensive risk assessment
JEL: 
G01
G21
G28
ISBN: 
978-3-95729-441-8
Document Type: 
Working Paper

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