EconPapers    
Economics at your fingertips  
 

Banks’ asset and liability valuation in the new regulatory environment: a game theory perspective

Amira Annabi () and Alicja K. Reuben ()
Additional contact information
Amira Annabi: Manhattan College
Alicja K. Reuben: NYU Abu Dhabi

Journal of Banking Regulation, 2017, vol. 18, issue 4, 302-309

Abstract: Abstract In the aftermath of the global financial crisis, US regulators have required banks to disclose more details regarding the valuation techniques of their traded assets and liabilities. Using data from 2013 to 2014 annual reports for nine primary dealers, we examine the determinants of the choice of the valuation techniques in a game theory setup. Consistent with their publicly disclosed shareholder policy, we assume that the banks’ objective is to maximize their return on equity. Our key findings are threefold. First, we show that the optimal strategy for the global systemically important banks (G-SIBs) is to select the valuation techniques associated with a lower level of risk. Conversely, the optimal strategy for the non-G-SIBs is to select the valuation techniques associated with a higher level of risk. Finally, we demonstrate that the above optimal strategies are consistent over time. These findings are in line with the regulators’ mindset to reduce the balance sheet riskiness of G-SIBs.

Keywords: Great recession; Game theory; Global systemically important banks; Return on equity; Valuation techniques (search for similar items in EconPapers)
JEL-codes: C72 D78 G11 G23 G24 G28 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1057/s41261-017-0038-z 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:pal:jbkreg:v:18:y:2017:i:4:d:10.1057_s41261-017-0038-z

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41261/PS2

Access Statistics for this article

Journal of Banking Regulation is currently edited by Dalvinder Singh

More articles in Journal of Banking Regulation from Palgrave Macmillan
Series data maintained by Sonal Shukla ().

 
Page updated 2017-12-30
Handle: RePEc:pal:jbkreg:v:18:y:2017:i:4:d:10.1057_s41261-017-0038-z