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Bank opacity - patterns and implications

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  • Stefan Avdjiev
  • Maximilian Jager

Abstract

We investigate the patterns and implications of bank opacity in Europe using a rich bank-level data set. Employing a novel event study methodology, we document that public data releases by the European Banking Authority (EBA) on banks' exposures to individual countries and sectors contained information that was not previously priced by equity and CDS markets. We demonstrate that the degree of bank opacity varied considerably across bank nationalities and counterparty sectors – it was highest for European periphery banks' sovereign exposures and European core banks' private sector exposures. Furthermore, we document that underestimations of banks' credit risk by markets were associated with lower funding costs and higher wholesale borrowing (for all banks) as well as with greater risk taking and higher profitability (for European periphery banks).

Suggested Citation

  • Stefan Avdjiev & Maximilian Jager, 2022. "Bank opacity - patterns and implications," BIS Working Papers 992, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:992
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    More about this item

    Keywords

    bank opacity; asymmetric information; event study; credit risk; asset markets.;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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