Proceedings of Annual Paris Economics, Finance and Business Conference
7 - 8 April 2016, Espace Vocation Haussmann, Paris, France
ISBN: 978-1-925488-04-3
Banks Valuation Techniques in the New Regulatory
Environment: A Game Theory Perspective
Amira Annabi1 and Alicja Reuben2
In the aftermath of the global financial crisis, US regulators have required
banks to disclose more details regarding the valuation techniques of their
assets and liabilities. Using 2013 and 201410K reports for 14 US primary
dealers, we examine the determinants of the choice of the valuation
techniques in a game theory set-up. Consistent with their publicly
disclosed shareholder policy, we assume that the banks’ objective is to
maximize theirreturn on equity (ROE). Our key findings are threefold.
First, we show that the optimal strategy for the Global Systemically
Important Banks (G-SIBs) is to select the valuation techniques
associated with a lower level of risk.Conversely, the optimal strategy for
the non-G-SIBsis to select the valuation techniques associated with a
higher level of risk. Finally, we demonstrate that the above optimal
strategies are consistent over time. These findings are in line with the
regulators' mindset to reduce the balance sheet riskiness of globally
systemically important banks.
JEL Codes: G11, G23, G26, G28
1
Dr. Amira Annabi, Department of Economics and Finance, Manhattan College, USA. Email:
amira.annabi@manhattan.edu
2
Dr. Alicja Reuben, Department of Management and Marketing, Manhattan College, USA. Email:
alicja.reuben@manhattan.edu