Financial statements based bank risk aggregation

Jianping Li, Lu Wei (), Cheng Few Lee, Xiaoqian Zhu () and Dengsheng Wu ()
Additional contact information
Lu Wei: Chinese Academy of Sciences
Xiaoqian Zhu: Chinese Academy of Sciences
Dengsheng Wu: Chinese Academy of Sciences

Review of Quantitative Finance and Accounting, 2018, vol. 50, issue 3, No 1, 673-694

Abstract: Abstract One of the major challenges involved in risk aggregation is the lack of risk data. Recently, researchers have found that mapping financial statements into risk types is a satisfactory way to resolve the problem of data shortage and inconsistency. Nevertheless, ignoring off-balance sheet (OBS) items has so far been regarded as the usual practice in risk aggregation, which may lead to deviations in conclusions. Hence, we improve the financial statements based risk aggregation framework by mapping OBS items into risk types. Based on 487 quarterly financial statements from all 16 listed Chinese commercial banks over the period 2007–2014, we empirically study whether the overall impact of OBS activities and the individual impact of each of the OBS risk types on total risk depend on bank size. Moreover, this research divides the sample into two subsets, during and after the subprime crisis, to find out how the subprime crisis affects risks of Chinese banks. Our empirical results show that although OBS credit risk is positively linked to total risk while OBS operational risk is negatively linked to total risk for both large and small banks, the overall impact of OBS activities on total risk depends on bank size. The overall OBS activities are positively related to the large bank’s total risk while they are negatively related to the small bank’s total risk. Besides, we also found that it is the increase of liquidity risk and market risk that leads to the larger total risk of Chinese banks during the subprime crisis.

Keywords: Risk measurement; Risk aggregation; Financial statements; Off-balance sheet; Chinese banking; Subprime crisis (search for similar items in EconPapers)
JEL-codes: G01 G21 G32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-017-0642-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
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:kap:rqfnac:v:50:y:2018:i:3:d:10.1007_s11156-017-0642-0

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-017-0642-0

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().