Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

Financial stability and financial risks

Working Paper: Risk and risk weights

The paper studies the relationship between the riskiness of banks' assets and their average risk weight. Risk weights explain about half of the variation in projected credit losses in the 2018 European Banking Authority stress test, and show a clear relationship with estimates of banks' asset volatilities. However, risk weights do a worse job of explaining future credit losses than do asset volatilities, especially for banks using internal models.