Taylor Begley, Amiyatosh Purnanandam, Kuncheng Zheng, 08 May 2015

A key regulatory response to the Global Crisis has involved higher risk-weighted capital requirements. This column documents systematic under-reporting of risk by banks that gets worse when the system is under stress. Thus banks’ self-reported levels of risk are least informative in states of the world when accurate risk measurement matters the most.

CEPR Policy Research