A Tale of Two Supervisors: Compliance with Risk Disclosure Regulation in the Banking Sector

50 Pages Posted: 20 Mar 2015 Last revised: 9 Mar 2021

See all articles by Jannis Bischof

Jannis Bischof

University of Mannheim - Accounting and Taxation

Holger Daske

University of Mannheim - Accounting and Taxation

Ferdinand Elfers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Luzi Hail

University of Pennsylvania - The Wharton School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: March 8, 2021

Abstract

We examine how the presence of multiple supervisory agencies affects firm-level compliance in form and substance with disclosure regulations. We exploit that banks are subject to equivalent risk disclosure rules under securities laws (IFRS 7) and banking regulation (Pillar 3 of the Basel II accord), but that different regulators start enforcing the rules at different points in time. We find that banks substantially increase their formal risk disclosures upon the adoption of Pillar 3 even if they already had to comply with the same requirements under IFRS 7. The effects are stronger if the central bank is responsible for bank supervision and bank regulators are equipped with more supervisory resources but are less pronounced if the securities market regulator is an independent entity. In turn, banks facing more market pressures are more compliant with the rules. We further find persistent liquidity benefits of the increased risk disclosures but only after Pillar 3 became effective and its compliance was enforced by the banking regulator. Our results suggest that formal and material compliance with risk disclosure regulation are a function of both the resources of the supervisory agency and its incentive alignment with the regulated firms. In our setting, the banking regulator seems more effective in fulfilling this role.

Keywords: Disclosure regulation, Risk disclosures, Liquidity, Financial institutions, Market supervision, IFRS, Basel II, International accounting

JEL Classification: F30, G21, G28, K22, M41

Suggested Citation

Bischof, Jannis and Daske, Holger and Elfers, Ferdinand and Hail, Luzi, A Tale of Two Supervisors: Compliance with Risk Disclosure Regulation in the Banking Sector (March 8, 2021). Available at SSRN: https://ssrn.com/abstract=2580569 or http://dx.doi.org/10.2139/ssrn.2580569

Jannis Bischof

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Holger Daske

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Ferdinand Elfers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Luzi Hail (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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