Using Risk Disclosures of Lage GCC Bank to Evaluate Information Content - Economic Research Forum (ERF)

Using Risk Disclosures of Lage GCC Bank to Evaluate Information Content

Mahmoud Haddad and Sam Hakim


Date:
November, 2014

NO.
863

Length:
16 pages

Topic:
D8. Information, Knowledge, and Uncertainty
G2. Financial Institutions and Services

This paper evaluates the risk disclosure made by GCC banks based on the belief that the information they release is meaningful to investors, regulators, and market participants. We assess how well their disclosure captures variation in risk exposure across banks and over time. We find that both the core capital and market risk capital ratios are key indicators. Specifically, these ratios contain information not reflected in at least 5 traditional risk metrics about the size of a banks (1) trading account, (2) derivatives positions (3) value-at-risk, (4) individual risk components (credit, market and operational), and (5) volume of risk-weighted assets. These observations lead us to conclude that disclosing these ratios adds transparency to GCC banks because their level is both informative and meaningful. Our paper complements and reinforces current supervisory efforts in the GCC to foster safe and sound institutions and a stable banking system.

Research Fellows

Mahmoud Haddad

Professor, The University of Tennessee at Martin, Tennessee


Research Fellows

Sam Hakim

Fidelity Investments


Project

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