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Judging the risk of banks: what makes banks opaque?

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Abstract

We argue that the risk of banks is hard for outsiders to judge because the risk of their mostly financial assets is either hard to measure (opaque) or easy to change. We report evidence that bond rating agencies seem to disagree more over banks than over other types of firms. Among banks, bond raters disagree more over opaque assets, like loans, and easily substitutable assets, like cash and trading assets. Fixed assets, like premises, reduce disagreement. Capital also reduces disagreement, but only at trading banks, where the risk of asset shifting may be most severe.

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  • Donald P. Morgan, 1998. "Judging the risk of banks: what makes banks opaque?," Research Paper 9805, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9805
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    References listed on IDEAS

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    Cited by:

    1. Rebecca Demsetz & Marc R. Saidenberg, 1999. "Looking beyond the CEO: executive compensation at banks," Staff Reports 68, Federal Reserve Bank of New York.
    2. John S. Jordan, 1999. "Pricing bank stocks: the contribution of bank examinations," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-53.
    3. Dr Dilruba Karim & Dr Tatiana Fic & Ray Barrell & Professor E. Philip Davis, 2011. "TIER 2 Capital and Bank Behaviour," National Institute of Economic and Social Research (NIESR) Discussion Papers 375, National Institute of Economic and Social Research.
    4. Cécile Casteuble & Emmanuelle Nys & Philippe Rous, 2013. "Bank Risk - Return Efficiency and Bond Spread: Is There Evidence of Market Discipline in Europe," Working Papers hal-00916717, HAL.
    5. John Ammer & Frank Packer, 2000. "How consistent are credit ratings? a geographic and sectoral analysis of default risk," International Finance Discussion Papers 668, Board of Governors of the Federal Reserve System (U.S.).
    6. anonymous, 2000. "Improving public disclosure in banking," Staff Studies 173, Board of Governors of the Federal Reserve System (U.S.).
    7. Repullo, Rafael, 2000. "Who Should Act as Lender of Last Resort? An Incomplete Contracts Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 580-605, August.

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