Liquidity and Transparency in Bank Risk Management

Liquidity and Transparency in Bank Risk Management

eBook - 2013
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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 constrained: 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.
Publisher: [Washington, D.C.] : International Monetary Fund, Ă2013
ISBN: 9781475545883
1475545886
Characteristics: 1 online resource (41 pages)
Additional Contributors: International Monetary Fund

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