Opacity and risk-taking: Evidence from Norway

This paper investigates how balance sheet opacity affects banks’ risk-taking behavior. We measure bank according to two metrics: the ratio of available-for-sale (AFS) securities and off-balance items. show that is positively correlated with realized risk. Specifically, banks more AFS have lower risk, while items higher The correlation between risk depends on both macroeconomic variables characteristics. positive relationship weaker for better capitalized are subject market discipline. also during periods favorable conditions. Motivated by this analysis, we then investigate regulation opacity. capital requirements reduce through a portfolio rebalancing channel.