We show that banks significantly under-report the risk in their trading book when they have lower equity capital. Specifically, a decrease in a bank's equity capital results in substantially more violations of its self-reported risk levels in the following quarter. The under-reporting is especially high during the critical periods of high systemic risk and for banks with larger trading operations. We exploit a discontinuity in the expected benefit of under-reporting present in Basel regulations to provide further support for a causal link between capital-saving incentives and under-reporting. Overall, we show that banks' self-reported risk measures become least informative precisely when they matter the most.http://deepblue.lib.umich.edu/bitstream/2027.42/109751/1/1260_Purnanandam.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/109751/4/1260_Purnanandam_Apr2015.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/109751/6/1260_Purnanandam_March2016.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/109751/8/1260_Purnanandam_Sept2016.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/109751/10/1260_Purnanandam_Sept2016_2.pdfDescription of 1260_Purnanandam_Sept2016.pdf : September 2016 revisionDescription of 1260_Purnanandam_March2016.pdf : March 2016 revisionDescription of 1260_Purnanandam_Apr2015.pdf : April 2015 revisionDescription of 1260_Purnanandam_Sept2016_2.pdf : September 2016 revision (new
