A Tale of Two Supervisors: Compliance with Risk Disclosure Regulation in the Banking Sector*

Ferdinand Elfers, Jannis Bischof, Holger Daske, Luzi Hail

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We examine how the presence of multiple supervisory agencies affects firm-level compliance in form and substance with disclosure regulations. This analysis is important because coordination problems among regulators are frequently present in practice but often overlooked in academic research. We exploit that banks are subject to equivalent risk disclosure rules under securities laws (IFRS 7) and banking regulation (Pillar 3 of the Basel II accord) but that different regulators start enforcing the rules at different points in time. We find that banks substantially increase their formal risk disclosures upon the adoption of Pillar 3 even if they already had to comply with the same requirements under IFRS 7. The effects are stronger if the central bank is responsible for bank supervision and bank regulators are equipped with more supervisory resources, but are less pronounced if the securities market regulator is an independent entity. In turn, banks facing more market pressures are more compliant with the rules. We further find persistent liquidity benefits of the increased risk disclosures but only after Pillar 3 became effective and its compliance was enforced by the banking regulator. Our results suggest that formal and material compliance with risk disclosure regulation are a function of both the resources of the supervisory agency and its incentive alignment with the regulated firms. In our setting, the banking regulator seems more effective in fulfilling this role.
Original languageEnglish
Pages (from-to)498-536
Number of pages39
JournalContemporary Accounting Research
Issue number1
Publication statusPublished - 7 Jul 2021

Bibliographical note

Funding Information:
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made. *Accepted by Eddie Riedl. We appreciate the helpful comments of two anonymous reviewers, Anne Beatty, Elizabeth Chuk, Dan Collins, Peter Demerjian, João Granja, Bjorn Jorgensen, Mark Lang, Jeffrey Ng, Martin Wallmeier, and workshop participants at the 2014 Dopuch Accounting Conference at Washington University, the 2015 London Business School Accounting Symposium, the 2015 Rotman Accounting Research Conference at the University of Toronto, the 2015 European Financial Management Association meeting, the 2015 European Accounting Association meeting, the 2015 American Accounting Association meeting, the 2016 meeting of the Verein für Socialpolitik, the University of Bristol, the University of Chicago, Erasmus University Rotterdam, the University of Exeter, Freie Universität Berlin, the University of Göttingen, the University of Graz, HEC Paris, Lancaster University, London School of Economics, BI Norwegian Business School, the University of Padova, Stockholm School of Economics, Tilburg University, the University of Wisconsin, and the University of Zurich. Jannis Bischof, Holger Daske, and Ferdinand Elfers gratefully acknowledge funding from the German Research Foundation (DFG) under the SPP 1578 program (“Financial Market Imperfections and Macroeconomic Performance”), Project-ID 201541626. An earlier version of this paper circulated under the title “A Tale of Two Regulators: Risk Disclosures, Liquidity, and Enforcement in the Banking Sector.” †Corresponding author.

Publisher Copyright:
© 2021 The Authors. Contemporary Accounting Research published by Wiley Periodicals LLC on behalf of the Canadian Academic Accounting Association.


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