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Leasing provides a fundamental source of firm funding, especially for small and medium-sized enterprises. A crucial difference from loans and bonds is that the lessor retains ownership rights of the leased asset during the lease term. This facilitates the asset utilization and work-out process and leads to higher liquidation proceeds. Hence, previous findings on the loan and bond loss given default (LGD) are not transferable to the leasing industry. Our analysis is based on a very granular data set covering a great variety of information on the lessee, the leased asset, as well as contractual and transactional characteristics. We examine novel LGD determinants such as an external credit rating, the lessee’s limited liability, and the number of leased assets and collaterals. Moreover, new results on previously explored factors question earlier findings, for example, on the lease contract type. Most importantly, as proposed by Miller and Töws (J Bank Finance 91:189–201, 2018), we analyze two different LGDs, one based on the asset utilization proceeds, the other on repayments. Our results clearly indicate the crucial importance of this separation when analyzing the drivers of the leasing LGD in detail because several determinants affect these LGDs in different ways. Our study assists both lessors and regulators in assessing the effective risk of lease contracts and enables lessors to enhance their risk management and work-out processes.

Zusammenfassung Statt den Tippschein bei einer der Annahmestellen des Deutschen Lotto- und Totoblocks auszufüllen, tippen viele Spieler zunehmend online und nutzen dabei teilweise die Angebote von Drittanbietern. Diese meist an Offshoreplätzen wie Gibraltar, aber auch Malta ansässigen Anbieter veranstalten nicht selber eine Lotterie, sondern bieten Wetten auf den Ausgang einer staatlich organisierten Lotterie (Erstlotterie) an, indem sie deren Ziehungen und Gewinnklassen nachbilden, ohne sich an den jeweiligen staatlichen Regularien für Lotterien zu orientieren. Der nachstehende Beitrag untersucht sowohl aus ökonomischer als auch aus juristischer Perspektive erstmalig die Frage, ob es sich bei den Wett- bzw. Spielverträgen des Anbieters der sog. Zweitlotterie um ein Derivat handelt, das möglicherweise nach dem KWG aufsichtspflichtig ist.

When a problem leaves decision makers uncertain as to how to approach it, observing others’ decisions can improve one’s own decisions by promoting more accurate judgments and a better insight into the problem. However, observing others’ decisions may also activate motives that prevent this potential from being realized, for instance, ego concerns that prompt excessive risk taking. Our experimental study investigates how two features of the social environment influence the effect of observing others’ decisions on individual risk taking and performance. We manipulated (1) the psychological distance to others whose decisions could be observed (and thereby the tendency to seek self-enhancing social comparison) and (2) the opportunity for interaction (and thereby for a cumulative effect of any such tendency on decisions over time and for an effect on social information itself). Because the two features covary in real-world settings, we designed two treatments corresponding to the two natural combinations. Both treatments provided participants with two other participants’ period decisions in a multiperiod problem under uncertainty. No new objective information about the problem could be inferred from these decisions. We predicted that participants who observed the decisions of distant others (who had solved the same problem earlier) would perform better than participants in a control sample without any information about others’ decisions and that participants who observed the decisions of proximal others (with whom interaction could arise) would take more risk and perform worse than those who observed distant others’ decisions. The data corroborate our predictions. We discuss implications for organizational learning.

The Covid-19 pandemic is hitting, directly and indirectly, economies throughout the world. While the pandemic is far from over, countries are searching for ways to enhance a quick recovery of their economies. Among others, the downturn is hampering the access of firms to the financial means necessary for investments. Therefore, facilitating access to financial means is an important component of rescue operations.

Prior literature mostly finds bond yield spreads to be insufficiently explained by credit risk in structural models (the 'credit spread puzzle'). In contrast, several recent results consider credit spreads to consist of credit risk to a substantially larger extent (if not even entirely). We address this dissent in the literature using a different empirical methodology. We utilize the removal of sovereign guarantees for savings banks and state banks in Germany as a unique quasi-natural experiment allowing identification of the credit risk component. During a transition period of over ten years, bonds of the same issuer with and without credit risk could be directly compared. Interestingly, less than 20% of the yield spread is due to credit risk for these bonds.

Zusammenfassung Trotz des anhaltenden Niedrigzinsumfelds und der damit einhergehenden erhöhten Zinsänderungsrisiken im Anlagebuch ist für diese Risikoart nach den im April 2016 erschienenen, überarbeiteten Basler Regelungen für Kreditinstitute nach wie vor keine Unterlegung mit Eigenkapital gemäß Säule 1 vorgesehen. Diese Festlegung ist zum Teil nicht mit den zuvor in der Konsultationsphase benannten Zielen der Neuregelung vereinbar und kritisch zu bewerten. Die Autoren beschreiben die geänderten regulatorischen Vorgaben und leiten mögliche Motive für die Entscheidung ab. Sie zeigen Schwachpunkte der Neuregelung auf und diskutieren diese im Hinblick auf mögliche Konsequenzen sowohl für einzelne Institute als auch für das gesamte Finanzsystem.

Staatliche Unternehmen allgemein und speziell öffentliche Kreditinstitute werden oft skeptisch gesehen. Ein Grund ist diemöglicherweise bewirkteWettbewerbsverzerrung.Dieser Aspekt wurde beispielsweise in Zusammenhang mit staatlichen Garantien für die früheren Landesbanken intensiv diskutiert, denen derartige Garantien letztlich untersagt wurden. Für die teils daraus entstandenen Förderbanken hingegen sind Staatsgarantien weiterhin zulässig.

In a laboratory experiment involving a complex multiperiod investment problem beset by rare adverse events, we investigated the effectiveness of a decision process intervention that involved decisions being elicited as a comprehensive system of short-term targets on three preset intermediate goal dimensions. Recent experiments have demonstrated that in such an environment, participants tend to gradually increase their exposure to risk prior to the occurrence of the first adverse event, a tendency that has been attributed to a misleading evaluation of short-term outcomes. The principle of inhibition of goal-related content following goal attainment and a heuristic model of aspiration adaptation independently predict that the formation of a comprehensive intermediate goal system will produce a stable trade-off between safety and short-term profit. We tested this hypothesis by comparing the decisions of participants required to form such targets with those of a control group allocating resources directly. Our main findings are that this intervention attenuated, if not fully removed, the tendency to increase risk exposure over time and that it improved performance. Our results serve to argue that the designability of decision procedures constitutes a degree of freedom in economic design that can be used to improve how individuals and organizations cope with complexity.

In einigen Jahren stehen Sie als Managerin einer Bank vielleicht vor dem Problem, die Entwicklungsperspektiven eines neuen Bankprodukts einschatzen zu mussen. Die kostenintensive Einfuhrung des Produkts lohnt sich fur Ihre Bank nur, wenn Sie damit auch langfristig Erlose erzielen werden. Vor allem bewegt Sie dabei die Frage, ob nicht ein anderer Intermediar dieselbe Leistung besser erbringen konnte. Das ware problematisch, weil Sie dann befurchten musten, schon bald von einer geeigneteren Institution aus dem Markt gedrangt zu werden.

Banken werden wie kaum eine andere Branche umfassend reguliert. Damit soll erreicht werden, dass Glaubiger vor Verlusten geschutzt werden und die Stabilitat des Finanzsystems gesichert wird. Die Hauptinstrumente zur Erreichung dieser Ziele sind Vorschriften uber Eigenkapital und Liquiditat, Offenlegungsvorschriften sowie Mindestanforderungen an das Risikomanagement. Im Anschluss an eine theoretische Grundlegung schliest sich im Kapitel F2 ein Uberblick uber die wichtigsten bankenaufsichtlichen Vorschriften an. Die Grundstruktur der risikobasierten Eigenkapitalanforderungen sowie der risikoinsensitiven Leverage Ratio im Rahmen der Capital Requirements Regulation (CRR) werden erlautert, ebenso wie der Supervisory Review and Evaluation Process (SREP), die Vorschriften zur Bankenabwicklung, die Regulierung von Wertpapierdienstleistungen (MIFIR und MIFID) und die Ausgestaltung der Einlagensicherung. Kapitel F3 gibt einen Uberblick uber den Aufbau und die Aufgaben der verschiedenen Institutionen, die mit der Bankenaufsicht befasst sind.

This paper presents the current structure of banking regulation and banking supervision in Europe. We discuss three main challenges resulting from the specific structure of the European system. Firstly, with the integration of the European banking market, main supervisory tasks were conferred on the European Central Bank (ECB). In consequence, new conflicts of interest arise, because the functions of monetary policy and prudential supervision are no longer separated. Secondly, the prudential supervision by European authorities and national authorities might differ to a certain extent. Although this is reasonable with respect to the proportionality principle, it may affect the domestic competitive environment. Thirdly, the European level playing field is harmed by differences in the supervisory stringency among European countries. We conclude that there is still need for action, and a structural solution is not generally apparent. Instead, incentives need to be corrected to eliminate conflicts of interest and agency problems, in particular regarding implicit bail-out guarantees. The recent introduction of a bank recovery and resolution regime might be a first step in the right direction.

Poor transparency of asset-backed securities (ABS) exacerbated the latest subprime lending crisis. In response, the European Central Bank introduced the ABS loan-level reporting initiative, obliging originators to disclose quarterly loan-by-loan information. However, does this increase in transparency alleviate the agency problems inherent in securitization? To answer this question, we examine a novel dataset of 107 ABS pools that are backed by more than 2.8 million loans for small and medium-sized enterprises from the first securitization repository in Europe. The results show that the increase in transparency indeed has valuable effects for investors, inducing originators to improve pool performance and diversification for existing as well as newly issued ABS. These effects persist for a large set of control variables and a broad variety of robustness tests.

Do banks with a specialized credit portfolio have superior selection and monitoring abilities? Controlling for the composition of the banks’ loan portfolios, we show that specialized banks have lower loan loss rates. We also see that for more focused German banks in our sample period 2003–2011 the standard deviation of loan loss rates seems to be lower. Moreover, the loan loss rate of a given industry in a bank‘s loan portfolio is lower if the bank has a major exposure to that industry.

This paper assesses the effect of banking regulation on bond yields. The costs for banks associated with capital requirements for holding bonds may lead to the demand for a higher compensatory yield. As government debt in particular is treated preferentially, capital costs may determine part of the spread between corporate and government bonds. We introduce a new measure for approximating the part of the spread that is induced by regulatory capital costs. Using German bond price data, we find that the costs associated with capital requirements explain a substantial fraction of the credit spread. Our findings contribute to the debate on whether to abolish the preferential treatment of government bonds in banking regulation and are of relevance for policymakers, banks and investors.

Zusammenfassung Kreditportfolios können breit über alle Branchen diversifiziert oder auf einzelne Branchen fokussiert sein. Die vorliegende Studie ergänzt frühere Analysen dieses Sachverhalts für deutsche Kreditgenossenschaften mittels neuer Daten. Es zeigen sich ein Wechsel von Diversifikations- auf Fokussierungstendenzen und Struktureffekte der Finanzkrise.

We investigate whether small business clients could use revocable credit lines, firstly, in their cash management and, secondly, as a funding source. Since the medium-size bank that provided our unique sample has the right to call these lines and charges considerably high rates for using them, we argue that these lines are particularly suitable for managing short-term liquidity needs. From our findings on how the line terms (line availability, line limit, and charged line rate) depend on a client’s liquidity-at-risk, the duration of its relationship with the bank, and its limit overdrafts, we nonetheless conclude that these lines, although they are revocable, fulfill both purposes.

We investigated in the laboratory whether gender differences in decisions made under uncertainty without information on decisions of equally informed others are robust to the availability of that information. Participants specified in each of at most 60 periods four capital volumes making up the skeletal balance sheet of a financial institution in a computer-simulated environment with rare but potentially payoff-devastating crises. In the main study, we compared decision outcomes from two treatments: in the first, a participant had access to information on business numbers of two other participants, at least one of whom – unknown to the participant – was of the opposite sex (treatment with group information); in the second, no such outside information was available (treatment without group information). Our main finding is that, without group information, men adopted significantly more risk-exposed financial positions than women, whereas this pattern did not obtain beyond the first few periods when group information was available. A further study produced evidence that this effect of the availability of group information upon risk exposure is moderated by the gender composition of the groups. We also confirm the well-established tendency of social information to diminish cross-sectional variability in decisions.

Research on problem solving drawing on the Carnegie School suggests that if a problem is of elevated complexity an appropriate representation is key to tackling it. However, when an appropriate representation is not in the decision maker’s knowledge base, it is unclear what determines whether the decision maker searches for novel representations. We theorize that novel representations can be explored only if the search is cognitively affordable. Yet, as problem complexity increases, the search becomes less cognitively affordable. High complexity obstructs the exploration of novel representations and prompts the exploitation of familiar search rules that requires less cognitive resources. Familiar search rules, however, are typically inappropriate for solving a novel problem when complexity is high. We designed and conducted an experiment to test our theory. Participants tackled a multi-period financial decision problem in an environment featuring rare but potentially payoff-devastating random shocks. Our findings corroborate that, as problem complexity increased, fewer participants explored novel representations and more participants exploited familiar search rules. The participants who explored novel representations performed better than those who used familiar search rules. The challenge of problem complexity therefore highlights the exploration of novel representations as an important direction for the research on search processes.

The opportunity of building up visible �Reserves for General Banking Risks� by the bank management represents a peculiarity in the German financial accounting framework for banks. We investigate German banks' motives for the creation and usage of these reserves and assess their role in financial stability. We find that banks primarily create and use GBR reserves to build up Tier 1 capital for regulatory capital management and earnings management purposes. Most importantly, however, we also reveal that banks using these reserves are less likely to experience a future distress or a bank default event. We therefore conclude that the existence of GBR reserves within the financial accounting framework represents both a convenient capital and earnings management tool for bank managers and a beneficial regulatory instrument to enhance bank stability.

We examine the developments of depositor knowledge, attitudes, and behavior throughout the recent financial crisis and discuss their impact on bank run risk. Based on a self-collected data set surveying depositors before (2007), at (2008), and after the peak of the crisis (2009), we observe a worrying dynamic pattern. At the peak, depositors knew more about deposit insurance, placed more importance on deposit security, and slightly raised their deposits. However, in the aftermath of the crisis the enhanced depositor knowledge proved to be non-permanent while the increased importance of deposit security and the exposure of depositors persisted. The proportion of completely uninformed, strongly involved, and highly exposed depositors, who carry the highest risk of triggering a bank run, was reduced around the peak of the crisis but rebounded strongly afterwards, even exceeding pre-crisis levels. These findings point to a higher bank run risk in the aftermath than during the financial crisis.

Vertreter aus der Munsteraner Bankenszene diskutieren uber die mit der neuen, digitalen Welt verbundenen Herausforderungen. Den Banken ist bewusst, dass der Wettbewerbsdruck durch junge, dynamische Unternehmen steigt. Als Antwort entwickeln sie ihre eigenen Losungen und gehen Kooperationen mit bestehenden FinTechs ein. Solange die FinTechs Nischen abdecken, stellen sie keine Gefahr dar.

Im vorliegenden Beitrag wird untersucht, welche Auswirkungen die aktuelle Niedrigzinsphase auf Zinsänderungsrisiken von Kreditinstituten hat. Der Schwerpunkt liegt hierbei auf Zinsänderungsrisiken im Anlagebuch unter besonderer Berücksichtigung des deutschen Bankensystems. Das Anlagebuch ist hinsichtlich dieser Risikoart besonders relevant, da hier für Zinsänderungsrisiken seitens der Regulierungsbehörden keine Eigenmittelunterlegung im Rahmen der ersten Säule gefordert wird. Die anhaltende Niedrigzinsphase kann erhebliche Implikationen für die Risikoübernahme von Kreditinstituten haben, da der Anreiz besteht, durch zunehmende Fristentransformation die geschmälerten Margen aufzubessern und folglich höhere Zinsänderungsrisiken in Kauf zu nehmen. This paper analyzes how the current low-interest-rate environment affects the interest rate risk of banks. The study focuses on the interest rate risk in the banking book with particular emphasis on the German banking system. The banking book is especially relevant concerning this risk category because no capital is required according to Pillar 1 by regulatory authorities. Therefore, the persistently low interest rates can have substantial implications regarding the risk taking of credit institutions because banks may have an incentive to improve narrow margins by increasing maturity transformation and consequently taking more interest rate risk in search for higher yields.

Zusammenfassung Durch die Einführung von Basel III werden die regulatorischen Harmonisierungstendenzen in der internationalen Bankenregulierung weiter vorangetrieben, um die Vergleichbarkeit und Transparenz auf internationaler Ebene zu erhöhen.Allerdings sollten bei der Umsetzung in nationales Recht länderspezifische Besonderheiten im Finanzsektor wie z. B. das deutsche Drei-Säulen-System nicht unberücksichtigt bleiben. Der vorliegende Beitrag untersucht in diesem Kontext, welche Auswirkungen die Neuregelungen für die einzelnen Eigenkapitalbestandteile der klassischen „Genossenschaftsbank vor Ort“ haben. Dafür wurde eine eigene Auswertung auf Basis der Abschluss- und Offenlegungsberichte 2009 durchgeführt.

Patrick Bramer, Horst Gischer, Andreas Pfingsten und Toni Richter; German Savings Banks’ Public Mission from a Stakeholder Management Perspective business model; financial industry; public mission; public welfare; savings bank; stakeholder Savings banks (“Sparkassen”) in Germany are characterized by a public mission (“offentlicher Auftrag”) as their unique feature. The economic consequences are not only reflected in financial statements, but also in definition and systematic pursuit of an appropriate business model. The contribution in hand discusses theoretical as well as practical conclusions of the public mission’s modern interpretation, primarily focused on the savings banks’ stakeholders’ requirements. Against this backdrop, we derive specific tasks of savings banks in the German banking industry. Ann-Marie Nienaber und Jan Tietmeyer Wie sollten Non-Profit Organisationen ihre Mitarbeiter vertrauensvoll motivieren? Eine vergleichende Analyse bei gemeinnutzigen und renditeorientierten Unternehmen Anreizgestaltung; Arbeitsmotivation; Intrinsische Motivation; Job Characteristic Model; Non-Profit-Organisationen Der Beitrag untersucht in einer empirischen Untersuchung den Unterschied der intrinsischen, inneren Motivation bei Mitarbeitern in gemeinnutzigen und renditeorientierten Organisationen. Dabei wird mittels einer kausalanalytischen Betrachtung aufgezeigt, dass Mitarbeiter von Non-Profit Organisationen eine hohere intrinsische Motivation bei ihrer Arbeit aufweisen als Mitarbeiter von Profit Organisationen. Um aus dieser Erkenntnis Handlungsempfehlungen fur die Arbeit in Non-Profit-Organisationen generieren zu konnen, erfolgen in einem weiteren Schritt konkrete Interpretationen der Kriterien, die fur das Ausmas der intrinsischen Motivation verantwortlich sind, um so herauszustellen wie Non-Profit-Organisationen die intrinsische Motivation ihrer Mitarbeiter positiv beeinflussen konnen. So mussen zum Beispiel im Rahmen der sozialen Arbeit in Non-Profit-Organisationen besonders auch kleine Meilensteine fur die Arbeitnehmer aufgezeigt werden und ein vertrauensvolles Feedback durch Dritte die Erreichung dieser reflektieren, damit langfristig keine Frustration entsteht. Christian Scherhag und Silke Boenigk Relationship Fundraising: Stand der empirischen Forschung, theoretischer Bezugsrahmen und zukunftige Forschungsfelder Fundraising, Nonprofit Marketing, Relationship Fundraising, Spenderbeziehung, Spenderbindung In den vergangenen Jahren beschaftigt sich die Fundraising Forschung vermehrt mit dem Management von Spenderbeziehungen. In diesem Beitrag wird in einem ersten Schritt eine Literaturanalyse zum Forschungsgebiet Relationship Fundraising prasentiert. Die Ergebnisse zeigen, dass eine Entwicklung in Studien von Partialmodellen hin zu zweidimensionalen Modellen zu erkennen ist und dass bislang wenige Beitrage mit mehrdimensionalen Modellen vorliegen. In einem zweiten Schritt wird ein theoretischer Bezugsrahmen abgeleitet, der die mehrdimensionalen Wirkungsbeziehungen zwischen Marketingaktivitaten von Nonprofit-Organisationen, psychologischen Wirkungen, Verhaltenswirkungen beim Spender und dem okonomischen Output fur eine Nonprofit-Organisation umfasst. Abschliesend werden vier Forschungsfelder fur zukunftige empirische Relationship Fundraising Studien aufgezeigt. Diese beziehen sich auf die Relationship Fundraising Strategie, die Auswahl der Relationship Fundraising Instrumente, die beziehungsorientierten Motive und Faktoren von Spendern sowie die Spenderbindung.

Zusammenfassung Der Beitrag erörtert die Folgen der Anwendung des IAS 32 in Kreditgenossenschaften. In diesem deutschen Bankensektor kann es hierdurch zu einem Verlust erheblicher Eigenkapitalbestandteile und damit auch der aufsichtsrechtlichen Eigenmittel kommen. Die Inkonsistenz des IAS 32 in Bezug auf genossenschaftliche Geschäftsguthaben wird gezeigt. Darüber hinaus werden Maßnahmen dargelegt und untersucht, mit deren Hilfe Kreditgenossenschaften den Erhalt und die Erweiterung ihrer Eigenkapitalbasis erreichen können.

We discuss the validity of Rybczynski’s theorem under increasing marginal costs within firms or industries. In particular, we show that an extra supply of any factor may lead to an expansion of all sector outputs if at least one sector permits input substitution. We provide a corresponding necessary and sufficient condition. This condition can even be satisfied when the equilibrium is Walrasian and Marshallian stable. Our findings are also robust with respect to aggregate improvements in total factor productivity which raise the economy’s outputs beyond private returns.

Zusammenfassung Ausgehend von problematischen Immobilien-Finanzierungen in den USA hat sich vor allem mittels Verbriefungsstrukturen eine Finanzkrise entwickelt und ausgebreitet. Im vorliegenden Beitrag werden einige begunstigende Faktoren und Produkte vorgestellt sowie Folgen fur die Wirtschaft herausgearbeitet. Dabei wird die Zinssenkungspolitik der US-Notenbank ebenso diskutiert wie kursierende Schuldvorwurfe an Manager („Gier“) und an Rating-Agenturen. Abstract Starting from sub-prime real estate financing in the U.S., a financial crisis has developed and spread across the world mainly via structured securities. We describe a number of factors and products which fueled this process and derive economic consequences. The Fed's interest rate policy is as well discussed as are common charges against allegedly greedy managers and rating agencies. JEL Classifications: G01, G21, G24, G28

Fur hilfreiche Kommentare und Anregungen zu fruheren Versionen dieses Aufsatzes danken wir Teilnehmern u.a. des Forschungsseminars der Deutschen Bundesbank (Marz 2004, Frankfurt), des Munsteraner Banken-Workshops (Mai 2004, Munster), der 66. Jahrestagung des Verbandes der Hochschullehrer fur Betriebswirtschaft (Juni 2004, Graz), der 19. Jahrestagung der European Economic Association (August 2004, Madrid), der 11. Jahrestagung der Deutschen Gesellschaft fur Finanzwirtschaft (Oktober 2004, Tubingen), des HypoVereinsbank Doktorandenseminars (November 2004, Paderborn), des 10. Symposiums Banking, Finance, and Insurance (Dezember 2004, Karlsruhe), der HypoVereinsbank Business Academy (April 2005, Munchen) sowie des Schmalenbach Arbeitskreises Strategieentwicklung und Controlling in Banken (Marz 2006, Frankfurt). Teile des vorliegenden Beitrages gehen auf gemeinsame Arbeiten mit Prof. Dr. Daniel Porath (Fachhochschule Mainz), Dr. Christoph Memmel (Deutsche Bundesbank) sowie PD Dr. Andreas Behr (Westfalische Wilhelms-Universitat Munster) zuruck. Alle verbleibenden Fehler und Unzulanglichkeiten gehen selbstverstandlich zu unseren Lasten.

Existing research documents that incoming CEOs in non-financial firms tend to take an “earnings bath”. They reduce their first year’s profits through discretionary expenses, blame the “bad outcome” on their predecessors, lower the performance benchmark, and save income for subsequent accounting periods. Identifying such an earnings bath for incoming CEOs in banks requires us to disentangle under-provisioning, which may have triggered the turnover event, and the earnings bath. For a sample of German savings banks over the period 1993–2012, we find that incoming CEOs increase discretionary expenses and that this increase is stronger for incoming CEOs from outside the bank than for insiders. We further show that CEOs coming from outside increase discretionary expenses during their first year in charge even if the default risk of the bank is low and the stock of risk provisions relative to risk exposure is high. Therefore, we conclude that the effects are only partially driven by incoming CEOs who rectify discretionary expenses by insufficient existing risk provisions, and that big bath accounting plays an important role in explaining discretionary expenses during CEO turnovers.

The Value at Risk (VaR) is widely used to measure the risk of banks’ trading books, but it also has been criticized in the previous academic literature due to some odd properties. Other risk measures have been suggested as potentially being superior from a theoretical perspective. This gives rise to the question whether or not it makes much difference in practical applications which index is being used. Certainly, the numbers indicating risk will be different. Whenever risk measures are ordinal, however, it only matters whether or not the ranking of risky alternatives (portfolios, say) coincides. Therefore, taking actual data from two trading books, we analyze the rank correlation of different measures. In most cases we observe high values of Spearman’s rank correlation coefficient, indicating that the index choice might not be too important. But it also becomes apparent that the VaR could as well be replaced by indices with a more convincing theoretical basis which do not generate a very different ranking of risks and in fact seem to compromise better between competing risk judgements. On the basis of theoretical arguments, we modify the data in various ways and repeat the analysis. It turns out that the results do not vary much, i.e., they seem to be quite robust. JEL classification: D81, G20, I32

It is well known that a close relation between the measurement of inequality and the measurement of risk exists. We demonstrate a similar relation between measures of poverty and downside risk, respectively. Based on properties of poverty measures, a number of axioms for reasonable downside risk measures is suggested and applied to the class of decomposable indices, which includes the lower partial moments as special cases. In a more general perspective, the paper enables those interested in measuring the downside risk of distributions to build upon the wealth of literature on poverty measurement when looking for suitable indices.