Transparency, risk disclosure and bank level stability

We investigate the impact of risk disclosure ex-post Basel II pillar III disclosure requirement implementation on bank level stability. Using self-constructed risk disclosure index, we find significant negative relationship between risk disclosure and banks expected default frequency (EDF). Our findings show that the Dodd-Frank Act enhances the stability of those complex banks classified as either credit-extending institutions or defined as complex by supervisory-judgment and high-risk activities, while it did not impact on other types of institutions. Our findings for shadow-banking activities are mixed. We also find that, credit risk, market risk and operational risk disclosure has most significant negative relationship with EDF.