Comparative Analysis of Risk Management and Risk Disclosure in the Banking Sector - Italian vs. World Practices

This paper has a double aim, to give a theoretical evaluation of the disclosure model chosen by IASB referring to market risks of financial instruments and to analyze the practical solutions adopted in the case of a sample of listed banks and compliance of the information referring to risk in the “Notes” to the requirements of IFRS 7. The research, to investigate the effectiveness of IFRS 7 Financial Instruments, has been conducted analyzing the consolidated annual financial statements of a sample of 17 banking companies, all listed in the three-year period (2008-2010) in Italian financial markets. Studying a three-year period should reveal the performance of IFRS 7 in fostering market discipline by pressing banks to disclose more information regarding risk profile elements, mainly considering market risks such as interest rate risk, currency risk and price risk, and then making financial disclosure more transparent. A content analysis has been adopted through a cross-sectional and time series study.The results underline that IFRS 7 improves the disclosure of market risks in financial statements compared to previous years but a better equilibrium between qualitative and quantitative information could be found. In the sample analyzed, substantial respect of IFRS 7 requirements has been found - apart from some particularly sensitive information - but in some cases quantitative information is not sufficient to show the possible impact of risks on the actual economic results and equity of entities