Liquidity and Transparency in Bank Risk Management

By Lev Ratnovski. Social Science Research Network, 2013

123 citations recorded by the source corpus.

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.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/1bb404cece95e9169be2b604e5326ecb80d01115

Citations in the corpus

• Thoughts on Financial Accounting and the Banking Industry (2014, unknown): “individual banks (Ratnovski, 2013; Gorton and Huang, 2006).”
• National culture and bank risk-taking (2017, unknown): “Customer trust is necessary for banks (Ratnovski, 2013) to maintain and increase deposits.”
• Do Banks Actively Manage Their Liquidity (2016, unknown): “Ratnovski (2013) constructs a model in which banks can manage liquidity risk via two methods: higher liquidity buffers which protect against small liquidity shocks, and greater transparency regarding their solvency which lessens the likelihood of large liquidity shocks.”