Elizaveta Sizova

Banking, Risk Management, Financial Regulation, Financial Markets, Corporate Finance

Strategic Risk Modeling by Banks: Evidence from Inside the Black Box (with Mike Mariathasan and Ouarda Merrouche)

The Review of Corporate Finance Studies, forthcoming

Regulators condition bank capital on risk but struggle to measure risk accurately. Capital requirements thus rely on inputs from banks’ internal risk models and banks have discretion over modeling choices. Using novel hand-collected data we find systematic differences in reported risk for the chosen simulation method, holding period and historical data size. Hence, modeling choices can be a significant channel of underreporting of risk. Consistent with this presumption we find that less-capitalized banks tend to choose less conservative methods. Moreover, banks using a softer simulation method display higher actual market risk while reporting lower market risk to the regulator.

Rebalancing of Currency Hedging and the Impact on Exchange Rates (with Olav Syrstad and Ingebjørg Hansen Sævareid)

We study how non-bank financial institutions (NBFIs) generate systematic FX flows: as foreign portfolio values change, they rebalance forwards to maintain target hedge ratios. Using transaction-level EMIR data on Norwegian NBFIs, we find that the pass-through from portfolio returns to hedging flows is close to one for fully hedged funds, strengthens with the hedge ratio, and is absent for unhedged funds. Forward purchases move USDNOK by about 0.2\% per billion NOK within minutes, and the impact is higher in volatile periods. A G10 panel exploiting cross-sectional variation in hedging positions, which have tripled since 2016, identifies significant price impact.
Norges Bank Governor's Speech

Currency Mismatch on Bank Balance Sheets and Exchange Rates (with Aleksei Oskolkov and Marcos Sorá)