Journal of Financial Stability Vol. 70 2024
Bank opacity, systemic risk and financial stability
Abstract
This paper examines the impact of bank opacity on European financial stability. Based on a panel dataset of listed European banks covering the period 2002–2018, I find that bank opacity has a significant influence on the institution-specific contribution to the ∆Conditional Value at Risk and Marginal Expected Shortfall. The enforcement mechanism and the policies introduced by accounting standard setters and regulators for the risk disclosure of banks have a positive impact on the reduction of systemic risk. Both the risk reporting in accordance with IFRS 7 and the measures introduced by the Basel Committee in the form of the Basel Pillar 3 regulation led to an increase in transparency and thus an improvement in financial market stability. As an independent enforcement mechanism, the country-specific strength of the external auditing profession plays a significant role in fostering stability. The results are robust, by using both alternative opacity measures and instrumental-variable estimations (2SLS) to control for potential endogeneity.
- DOI
- 10.1016/j.jfs.2023.101211
- Volume
- 70
- Pages
- 101211
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref