{
  "title": "Liquidity and Transparency in Bank Risk Management",
  "publication": "IMF Working Papers, January 18, 2013",
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  "summary": "Banks may be unable to refinance short-term liabilities in case of solvency concerns. To manage this risk, banks can accumulate a buffer of liquid assets, or strengthen transparency to communicate solvency.",
  "sections": [
    {
      "heading": "Summary of core arguments",
      "content": "- Banks face the risk of being unable to refinance short-term liabilities in case of solvency concerns.\n- Two principal management strategies:\n  - Accumulate a buffer of liquid assets.\n  - Strengthen transparency to communicate solvency to markets.\n- Comparative properties of the strategies:\n  - A liquidity buffer provides complete insurance against small shocks.\n  - Transparency covers also large shocks but imperfectly.\n- Incentive and regulatory tensions:\n  - Due to leverage, an unregulated bank may choose insufficient liquidity buffers and insufficient transparency.\n  - The regulatory response is constrained:\n    - Liquidity buffers can be imposed by regulation.\n    - Transparency is not verifiable and therefore cannot be imposed in the same way.\n  - Liquidity requirements can compromise banks' transparency choices and increase refinancing risk.\n- Policy implication:\n  - To be effective, liquidity requirements should be complemented by measures that increase bank incentives to adopt transparency."
    },
    {
      "heading": "Key findings and mechanisms",
      "content": "- Liquidity buffers:\n  - Provide full insurance against small shocks.\n  - Can be mandated by regulators.\n  - May have unintended consequences on banks' transparency choices.\n- Transparency:\n  - Helps communicate solvency and can cover large shocks, though imperfectly.\n  - Is not verifiable by regulators, limiting direct regulatory enforcement.\n- Interaction effects:\n  - Imposing liquidity requirements alone can reduce incentives for banks to adopt transparency, which may increase overall refinancing risk.\n  - Effective policy requires combining liquidity regulation with measures that strengthen incentives for transparency."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Do not rely solely on liquidity requirements.\n- Complement liquidity requirements with measures that increase bank incentives to adopt transparency."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subject: Bank solvency, Banking, Hedging, Liquidity requirements, Liquidity risk\n- Keywords: bank liquidity, compromise bank transparency choice, liquidity crisis, market failure, WP\n\nIMF Working Papers — Liquidity and Transparency in Bank Risk Management (Working Paper No. 2013/016)\n\n---\n\n Content in this bundle\n\n- 1. The Timeline\n  - 1. The Timeline (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 1. The Timeline (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/liquidity-and-transparency-in-bank-risk-management-40258"
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    "Authors: Lev Ratnovski",
    "Published: January 18, 2013",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781616356774.001",
    "Banks face the risk of being unable to refinance short-term liabilities in case of solvency concerns.",
    "Two principal management strategies:",
    "Comparative properties of the strategies:",
    "Incentive and regulatory tensions:",
    "Policy implication:",
    "Liquidity buffers:",
    "Transparency:",
    "Interaction effects:",
    "Do not rely solely on liquidity requirements.",
    "Complement liquidity requirements with measures that increase bank incentives to adopt transparency.",
    "Subject: Bank solvency, Banking, Hedging, Liquidity requirements, Liquidity risk",
    "Keywords: bank liquidity, compromise bank transparency choice, liquidity crisis, market failure, WP",
    "**1. The Timeline**"
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