An empirical investigation into market risk disclosure: is there room to improve for Italian banks?

Salvatore Polizzi and Enzo Scannella

Journal of Financial Regulation and Compliance, 2020, vol. 28, issue 3, 465-483

Abstract: Purpose - This paper aims to examine the market risk disclosure practices of large Italian banks. The contribution provides insights on the way banks should provide information about market risk. The problem related to the asymmetric information between banks from one side, and investors and stakeholders on the other, represents a crucial issue that requires further considerations by scholars and regulators. Design/methodology/approach - This contribution adopts a mixed methodological approach to analyse both qualitative and quantitative profiles of market risk disclosure in banking. This paper analyses the most important documents Italian banks are required to prepare for risk disclosure purposes, namely the management commentary, the Basel Pillar 3 disclosure report and the notes. Findings - The results show that banks do not fully exploit the potentialities of management commentary and Pillar 3 disclosure report. Various areas of information overlapping between the different financial reports worsen the overall comprehensibility and relevance of bank risk reporting. Practical implications - The reduction of the information overlapping, the careful choice of the location of the information and more appropriate use of the management commentary to provide qualitative information about market risk strategies represent crucial areas of improvement banks and regulators should take into account. Originality/value - Providing an in-depth analysis of the market risk disclosure practices of a sample of large Italian banks, this paper detects the main drawbacks of their market risk reporting and provides useful recommendations to improve it.

Keywords: Financial regulation; Risk disclosure; Risk management; Market risk; Banking; Banking regulation; Risk reporting (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-05-2019-0060

DOI: 10.1108/JFRC-05-2019-0060

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