Liquidity and Transparency in Bank Risk Management
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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. While a liquidity buffer provides complete insurance against small shocks, transparency covers also large shocks but imperfectly. Due to leverage, an unregulated bank may choose insufficient liquidity buffers and transparency. The regulatory response is constained: while liquidity buffers can be imposed, transparency is not verifiable. Moreover, liquidity requirements can compromise banks' transparency choices, and increase refinancing risk. To be effective, liquidity requirements should be complemented by measures that increase bank incentives to adopt transparency.
Series:
Working Paper No. 2013/016
Subject:
Bank solvency Banking Hedging Liquidity requirements Liquidity risk
English
Publication Date:
January 18, 2013
ISBN/ISSN:
9781616356774/1018-5941
Stock No:
WPIEA2013016
Pages:
41
Please address any questions about this title to publications@imf.org