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Other comprehensive income volatility and bank risk

Yang Su, Junrui Zhang, Hong Zhao and Mingming Zhou

Journal of International Financial Markets, Institutions and Money, 2025, vol. 99, issue C

Abstract: In this study, we explore how banks manage risk in response to Other Comprehensive Income (OCI) volatility. We find that banks with high OCI volatility decrease perceived risk while increasing their contribution to systemic risk. As strategies in response to OCI volatility, banks reduce available-for-sale (AFS) holdings and loans, and expand the off-balance-sheet (OBS) entrusted loans and wealth management products. The effects on systemic risk and OBS activities are more pronounced under tight monetary policy but less so under macroprudential supervision. These results indicate that OCI captures the attention of banks in their risk management, yet their response to OCI volatility intensifies systemic fragility. The enforcement of OCI disclosure should be complemented by effective macroprudential supervision to ensure financial stability.

Keywords: Other Comprehensive Income; Bank Risk; Off-balance-sheet Activity; Monetary Policy; Macro-prudence Policy (search for similar items in EconPapers)
JEL-codes: G01 G32 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:99:y:2025:i:c:s1042443125000058

DOI: 10.1016/j.intfin.2025.102115

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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