Working Paper: NBER ID: w11037
Authors: Philippe Jorion
Abstract: This paper provides an empirical analysis of the risk of trading revenues of U.S. commercial banks. We collect quarterly data on trading revenues, broken down by business line, as well as the Value at Risk-based market risk charge. The overall picture from these preliminary results is that there is a fair amount of diversification across banks and within banks across business lines. These low correlations do not corroborate systemic risk concerns. Neither is there evidence that the post-1998 period has witnessed an increase in volatility of trading revenues.
Keywords: No keywords provided
JEL Codes: G11; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Value at Risk (VaR) systems (C58) | herding behavior among banks (C92) |
| herding behavior among banks (C92) | increased market volatility (G17) |
| VaR limits (C58) | liquidation of positions during stress (G33) |
| liquidation of positions during stress (G33) | increased correlations in trading revenues (G19) |
| increased correlations in trading revenues (G19) | systemic risk (E44) |
| trading revenues post-1998 (N22) | effective diversification (G11) |
| effective diversification (G11) | no increased volatility in trading revenues (G19) |