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Using Risk Disclosures of Lage GCC Bank to Evaluate Information Content

Author

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  • Mahmoud Haddad

    (University of Tennessee-Martin)

  • Sam Hakim

Abstract

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.

Suggested Citation

  • Mahmoud Haddad & Sam Hakim, 2014. "Using Risk Disclosures of Lage GCC Bank to Evaluate Information Content," Working Papers 863, Economic Research Forum, revised Nov 2014.
    • Handle: RePEc:erg:wpaper:863
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    References listed on IDEAS

    as
    1. Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value‐at‐Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, vol. 57(3), pages 1093-1111, June.
    2. Flannery, Mark J. & Kwan, Simon H. & Nimalendran, M., 2004. "Market evidence on the opaqueness of banking firms' assets," Journal of Financial Economics, Elsevier, vol. 71(3), pages 419-460, March.
    3. Pérignon, Christophe & Deng, Zi Yin & Wang, Zhi Jun, 2008. "Do banks overstate their Value-at-Risk?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 783-794, May.
    4. Pérignon, Christophe & Smith, Daniel R., 2010. "The level and quality of Value-at-Risk disclosure by commercial banks," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 362-377, February.
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