European Banking Union and bank risk disclosure: The effects of the Single Supervisory Mechanism

Yener Altunbaş, Salvatore Polizzi, Enzo Scannella, John Thornton

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Abstract

This paper provides evidence on the impact of European Banking Union (BU) and the asso- ciated Single Supervisory Mechanism (SSM) on the risk disclosure practices of European banks. The onset of BU and the associated rules are considered as an exogenous shock that provides the setting for a natural experiment to analyze the effects of the new supervisory arrangements on bank risk disclosure practices. A Difference-in-Differences approach is adopted, building evidence from the disclosure practices of systemically important banks supervised by the European Central Bank (ECB) and other banks supervised by national regulators over the period 2012–2017. The main findings are that bank risk disclosure increased overall following BU but there was a weakening of disclosure by SSM-super- vised banks relative to banks supervised by national authorities. We also find that the over- all positive effect of the BU on bank disclosure is stronger for less profitable banks and in the most troubled economies of the Eurozone (GIPSI countries), while the negative effect on centrally supervised banks is stronger if bank CEOs act also as chairmen (CEO duality). We interpret these findings in light of the fact that the new institutional arrangements for bank supervision under which the ECB relies on local supervisors to collect the information necessary to act gives rise to inefficiencies with respect to the speed and completeness of the information flow between SSM supervised banks and the ECB, which are reflected in bank disclosure practices.
Original languageEnglish
Number of pages35
JournalReview of Quantitative Finance and Accounting
Early online date15 Jul 2021
DOIs
Publication statusE-pub ahead of print - 15 Jul 2021

Keywords

  • Banking union
  • Banks
  • Principal-agent problem
  • Risk disclosure
  • Single supervisory mechanism

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