Viewing Risk Measures as Information

TL;DR

This paper proposes that risk measure reporting can be used to infer a bank's loss distribution, emphasizing the need for multiple measures to reduce ambiguity and improve risk assessment.

Contribution

It introduces a novel perspective that risk measures serve as informational tools to determine loss distributions, advocating for regulatory reporting of multiple measures.

Findings

Multiple risk measures are necessary to accurately determine loss distributions.

Insufficient information can lead to ambiguous risk assessments.

Regulatory reporting of multiple measures can improve risk management.

Abstract

Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss distribution function for a financial entity. We demonstrate that a lack of sufficient information can lead to ambiguous risk situations. We give examples, showing the need for the reporting of multiple risk measures in order to determine a bank's loss distribution. We conclude by suggesting a regulatory requirement of multiple risk measures being reported by banks, giving specific recommendations.