European Parliament Library

Liquidity and Transparency in Bank Risk Management, Lev Ratnovski

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
Table Of Contents
Cover; Contents; I. Introduction; II. Related Literature; III. The Model; IV. Liquidity Risk Management; V. Regulation; VI. Conclusion; References; Appendix; A. A Model Without Deposit Insurance; B. A Quantitative Example; Figures; 1. The Timeline; 2. The Information Structure; 3. Socially Optimal Liquidity Risk Management; 4. Private Risk Management Choices; 5. The Unintended Effects of Liquidity Requirements; 6. Maturity Mismatch Limits
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (42 p.)
Specific Material Designation
Form Of Item

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