Risk Targeting and Policy Illusions—Evidence from the Announcement of the Volcker Rule

Jussi Keppo () and Josef Korte ()
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Jussi Keppo: NUS Business School and Risk Management Institute, National University of Singapore, Singapore 119245
Josef Korte: Faculty of Economics and Business Administration, Goethe University Frankfurt, 60323 Frankfurt am Main, Germany

Management Science, 2018, vol. 64, issue 1, 215-234

Abstract: We analyze the Volcker Rule’s announcement effects on U.S. bank holding companies. In line with the rule and the banks’ public compliance announcements, we find that those banks that are affected by the Volcker Rule already reduced their trading books relative to their total assets 2.34% more than other banks. However, the announcement of the rule did not reduce the banks’ overall risk taking. To keep their risk targets, the affected banks raised the riskiness of their asset returns. We also find some evidence that the affected banks raised their trading risk and decreased the hedging of their banking business.

Keywords: Volcker Rule; proprietary trading; trading book; banking book; hedging; bank regulation (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:64:y:2018:i:1:p:215-234

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