Liquidity and Transparency in Bank Risk Management

42 Pages Posted: 22 Feb 2013

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

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.

Keywords: Banks, Basel III, Economic models, Liquidity, Risk management, Transparency, liquidity risk, regulation, transparency

JEL Classification: G21, G28, G32

Suggested Citation

Ratnovski, Lev, Liquidity and Transparency in Bank Risk Management (January 2013). IMF Working Paper No. 13/16. Available at SSRN: https://ssrn.com/abstract=2222480

Lev Ratnovski (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
+1 202 623 8213 (Phone)

HOME PAGE: http://ratnovski.googlepages.com

Register to save articles to
your library

Register

Paper statistics

Downloads
152
rank
9,021
Abstract Views
602
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information