COMPANY ACCOUNTS MANDATORY DISCLOSURE OF INTEREST RATE RISK IN THE BANKING BOOK OF ITALIAN BANKS: IMPLICATIONS FOR MARKET INFORMATION

This chapter discusses the disclosure of interest rate risk in the banking book of Italian banks in light of the new bank accounts scheme issued by Bank of Italy (Circular No 262 of 22 December 2005, “Governing Bank Financial Statements” and Sanction of 22 December 2005, “Provisional Implementation Measures”). It uses a comparative approach to concentrate on a mainly research question: how does mandatory disclosure increase public information about interest rate risk management in the banking industry? Starting from a survey of the most recent literature on financial disclosure and on interest rate risk, and then analysing International Accounting Standards, Basel Committee guidance and Italian regulation, we collate consolidated financial statements for a set of fifty-three Italian banks over the period 2004-2005. Expected results are reported on two main issues: (1) the efficacy of transition from voluntary (as in the 2004 financial statements) to mandatory disclosure of interest rate risk in increasing market information; (2) compliance with new company accounts rules. The originality of this study ensues from the importance of interest rate risk for bank profitability and stability. In addition, the study attempts to direct analytical attention to this subject. Few studies have concerned themselves with disclosure of interest rate risk on banks, which may be due to the fact that, to date, predominant attention has been paid to credit risk and to market risk, and to the absence of a mandatory capital charge specifically for interest rate risk from Basel Committee. Our intention is to contribute to the national and international debate on the harmonization of accounting rules for banks accounts. Finally, we conduct a first check on the efficacy of the new Italian company accounts scheme for banks in enhancing market information.