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Is the Comprehensive Assessment able to capture banks’ risks?

Author

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  • Barucci, Emilio
  • Baviera, Roberto
  • Milani, Carlo

Abstract

We evaluate the Comprehensive Assessment by analysing the database made available by the European Central Bank. We show that the capital deficit of a bank identified by the Comprehensive Assessment is positively related to a market-based risk measure of the bank, such as its historical volatility, and that the post-adjustment leverage ratio, but not the pre-adjustment leverage ratio or the risk-weighted capital ratio, is related to it. These results show that the Comprehensive Assessment captures banks’ riskiness and that the leverage ratio is a better indicator than the risk-weighted capital ratio.

Suggested Citation

  • Barucci, Emilio & Baviera, Roberto & Milani, Carlo, 2016. "Is the Comprehensive Assessment able to capture banks’ risks?," Finance Research Letters, Elsevier, vol. 19(C), pages 98-104.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:98-104
    DOI: 10.1016/j.frl.2016.06.010
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    References listed on IDEAS

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    1. Acharya, Viral & Engle, Robert & Pierret, Diane, 2014. "Testing macroprudential stress tests: The risk of regulatory risk weights," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 36-53.
    2. Betz, Frank & Oprică, Silviu & Peltonen, Tuomas A. & Sarlin, Peter, 2014. "Predicting distress in European banks," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 225-241.
    3. Andrew G. Haldane & Vasileios Madouros, 2012. "The dog and the frisbee," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-159.
    4. Viral Acharya & Robert Engle & Matthew Richardson, 2012. "Capital Shortfall: A New Approach to Ranking and Regulating Systemic Risks," American Economic Review, American Economic Association, vol. 102(3), pages 59-64, May.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Durrani, Agha & Ongena, Steven & Ponte Marques, Aurea, 2022. "The certification role of the EU-wide stress testing exercises in the stock market. What can we learn from the stress tests (2014-2021)?," Working Paper Series 2711, European Central Bank.
    2. Douglas da Rosa München & Herbert Kimura, 2020. "Regulatory Banking Leverage: what do you know?," Working Papers Series 540, Central Bank of Brazil, Research Department.

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    More about this item

    Keywords

    Bank regulation; Stress test; Capital; Sovereign risk; European Central Bank;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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