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Do Internal Rating Models Mitigate Bank Opacity? Evidence from Analysts’ Forecasts

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Abstract

Based on a sample of large European banks, we test whether the usage of internal rating models for regulatory purposes affects bank opacity. We find that a more intensive use of advanced internal rating models is associated with lower forecast error and disagreement across analysts on bank earnings per share. We also find that these models alleviate the negative effect of non-performing loans on bank transparency.

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  • Brunella Bruno & Immacolata Marino & Giacomo Nocera & Andrea Resti, 2020. "Do Internal Rating Models Mitigate Bank Opacity? Evidence from Analysts’ Forecasts," CSEF Working Papers 576, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:576
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    Keywords

    Banks; Opacity; Internal Rating-Based (IRB) approach;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • 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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