Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective

Massimo Arnone, Alberto Costantiello and Angelo Leogrande

MPRA Paper from University Library of Munich, Germany

Abstract: The paper deals only with the identification of the determinants of total risk exposure amount within the European banking system, while the importance of TREA within Basel III regulatory regimes is focused. The research provides the integration of an econometric investigation with high-end machine learning techniques for the identification of the influential financial variables of TREA. The most relevant financial determinants of TREA were identified as LCR, CRWEA, LA, and OREA. These also reflect complex interdependencies-for instance, the negative value of TREA and LCR would suggest that there were trade-offs made between risk-taking and liquidity management. Thus, the positive relationship with CRWEA, and even more so with derivatives over assets, underlines intrinsic risks from credit exposures and related to financial instruments' complexity. The report further iterates that there should be mechanisms for appropriate risk-weighting, adequate liquidity buffers, and proper operational controls so that the financial system can become significantly more stable and resilient. This work will put forward actionable recommendations to policy makers, regulators, and financial institutions on mitigating systemic vulnerabilities and further optimizing their strategies for compliance in view of an increasingly volatile financial landscape, leveraging from traditional econometric modeling insights with machine learning.

Keywords: Total Risk Exposure Amount; European Banking System; Liquidity Coverage Ratio; Risk Management; Basel III Compliance. (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 G32 (search for similar items in EconPapers)
Date: 2025-01-05
New Economics Papers: this item is included in nep-eec and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/123190/1/MPRA_paper_123190.pdf original version (application/pdf)

Related works:
Working Paper: Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective (2025)
Working Paper: Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective (2025)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:123190

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().