Market Risk Disclosure in Banks’ Balance Sheets and the Pillar 3 Report: The Case of Italian Banks

Market risk has taken on growing importance in banking in recent years. Risk disclosure has strategic importance for the efficiency of financial markets and overall financial stability. It plays a pivotal role in strengthening market discipline and building trust in stakeholder relationships. The aim of this chapter is to investigate market risk disclosure in banking. The author employs content analysis to conduct an empirical study on a sample of the ten largest Italian banks. The study provides evidence that banks differ in their market risk reporting, even though they are subject to similar regulatory requirements and accounting standards. It also shows that there is room to improve various aspects of risk disclosure and provides some useful insights for further research. The structure of this chapter is as follows. Section 1 introduces market risk disclosure in banking. Section 2 provides the theoretical foundations of risk disclosure. Section 3 analyses the specific nature of market risk and provides a regulatory and accounting perspective. Section 4 presents a hybrid scoring model based on analytical grids of risk disclosure parameters to assess market risk disclosure. Section 5 analyses and discusses the main research findings, as well as the potential implications, while Sect. 6 presents the conclusions drawn.