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Judging the risk of banks: what makes banks opaque?
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.
Keywords: Bank investments; Bank capital; Risk; Bank assets;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Research Paper
Publication Date: 1998
Number: 9805