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Risk Targeting and Policy Illusions—Evidence from the Announcement of the Volcker Rule

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  • Jussi Keppo

    (NUS Business School and Risk Management Institute, National University of Singapore, Singapore 119245)

  • Josef Korte

    (Faculty of Economics and Business Administration, Goethe University Frankfurt, 60323 Frankfurt am Main, Germany)

Abstract

We analyze the Volcker Rule’s announcement effects on U.S. bank holding companies. In line with the rule and the banks’ public compliance announcements, we find that those banks that are affected by the Volcker Rule already reduced their trading books relative to their total assets 2.34% more than other banks. However, the announcement of the rule did not reduce the banks’ overall risk taking. To keep their risk targets, the affected banks raised the riskiness of their asset returns. We also find some evidence that the affected banks raised their trading risk and decreased the hedging of their banking business.

Suggested Citation

  • Jussi Keppo & Josef Korte, 2018. "Risk Targeting and Policy Illusions—Evidence from the Announcement of the Volcker Rule," Management Science, INFORMS, vol. 64(1), pages 215-234, January.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:1:p:215-234
    DOI: 10.1287/mnsc.2016.2583
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