Banks as Regulated Traders

Antonio Falato (), Diana A. Iercosan and Filip Zikes
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Diana A. Iercosan: https://www.federalreserve.gov/econres/diana-a-iercosan.htm
Filip Zikes: https://www.federalreserve.gov/econres/filip-zikes.htm

No 2019-005r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Banks use trading as a vehicle to take risk. Using unique high-frequency regulatory data, we estimate the sensitivity of weekly bank trading profits to aggregate equity, fixed-income, credit, currency and commodity risk factors. Our estimates imply that U.S. banks had large trading exposures to equity market risk before the Volcker Rule, which they curtailed afterwards. They also have exposures to credit and currency risk. The results hold up in a quasi-natural experimental design that exploits the phased-in introduction of reporting requirements to address identification. Heterogeneity and placebo tests further corroborate the results. Counterfactual stress-test analyses quantify the financial stability implications.

Keywords: Bank trading; Regulation; risk exposures; Systemic risk (search for similar items in EconPapers)
JEL-codes: G21 G32 G38 (search for similar items in EconPapers)
Pages: 85 pages
Date: 2019-02-07, Revised 2021-08-04
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2019-05

DOI: 10.17016/FEDS.2019.005r1

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