publication . Article . Preprint . 2013

Liquidity and Transparency in Bank Risk Management

Lev Ratnovski;
Open Access
  • Published: 18 Jan 2013 Journal: SSRN Electronic Journal (eissn: 1556-5068, Copyright policy)
  • Publisher: Elsevier BV
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 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,...
Subjects
free text keywords: Banks;Liquidity risk;Transparency;regulation, Basel III, hedging, hedge, bank transparency, banking, bank liquidity, Government Policy and Regulation,, Liquidity crisis, Economics, Financial system, Refinancing risk, Market liquidity, Liquidity risk, Basel III, Transparency (graphic), Finance, business.industry, business, Solvency, Accounting liquidity, Economics and Econometrics
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