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Post-Crisis Bank Liquidity Risk Management Disclosure

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  • Asongu Simplice

    ()
    (Yaoundé/Cameroun)

Abstract

Purpose – This work seeks to investigate post-crisis measures banks have adopted in a bid to manage liquidity risk. It is based on the fact that the financial liquidity market was greatly affected during the recent economic turmoil and financial meltdown. During the crisis, liquidity risk management disclosure was crucial for confidence building in market participants. Design/methodology/approach – The study investigates if Basel II pillar 3 disclosures on liquidity risk management are applied by 20 of top 33 world banks. Bank selection is based on information availability, geographic balance and comprehensiveness of the language in which information is provided. This information is searched from the World Wide Web, with a minimum of one hour allocated to ‘content search’, and indefinite time for ‘content analyses’. Such content scrutiny is guided by 16 disclosure principles classified in four main categories. Findings – Only 25% of sampled banks provide publicly accessible liquidity risk management information; a clear indication that in the post-crisis era, many top ranking banks do not still take Basel disclosure norms seriously, especially the February 2008 pre-crisis warning by the Basel Committee on Banking Supervision. Implications/limitations – Bank stakeholders should easily have access to information on liquidity risk management. Banks falling-short of making such information available might not inspire confidence in market participants in events of financial panic and turmoil. Like in the run-up to the previous financial crisis, if banks are not compelled to explicitly and expressly disclose what measures they adopt in a bid to guarantee stakeholder liquidity, the onset of any financial shake-up would only precipitate a meltdown. The main limitation of this study is the use of the World Wide Web as the only source of information available to bank stakeholders and/or market participants. Originality/value – The contribution of this paper to literature can be viewed from the role it plays in investigating post-crisis measures banks have adopted in a bid to inform stakeholders on their management of liquidity risk.

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File URL: http://www.afridev.org/RePEc/agd/agd-wpaper/Post-crisis-bank-liquidity-risk-management-disclosure.pdf
File Function: Revised version, 2011
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Bibliographic Info

Paper provided by African Governance and Development Institute. in its series Working Papers with number 10/002.

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Length: 24
Date of creation: 15 Dec 2010
Date of revision: 08 Aug 2011
Handle: RePEc:agd:wpaper:10/002

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Keywords: Post-crisis; Liquidity; Risk management; Banks;

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References

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  1. Demirgüç-Kunt, AslI & Detragiache, Enrica & Tressel, Thierry, 2008. "Banking on the principles: Compliance with Basel Core Principles and bank soundness," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 511-542, October.
  2. Qian, Yiming & John, Kose & John, Teresa A., 2004. "Financial system design and liquidity provision by banks and markets in a dynamic economy," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 385-403, April.
  3. Cordella, Tito & Levy Yeyati, Eduardo, 1998. "Public Disclosure and Bank Failures," CEPR Discussion Papers 1886, C.E.P.R. Discussion Papers.
  4. Merrouche, Ouarda & Schanz, Jochen, 2010. "Banks' intraday liquidity management during operational outages: Theory and evidence from the UK payment system," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 314-323, February.
  5. Admati, Anat R & Pfleiderer, Paul, 2000. "Forcing Firms to Talk: Financial Disclosure Regulation and Externalities," Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 479-519.
  6. Dinger, Valeriya, 2009. "Do foreign-owned banks affect banking system liquidity risk?," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 647-657, December.
  7. Ratnovski, Lev, 2009. "Bank liquidity regulation and the lender of last resort," Journal of Financial Intermediation, Elsevier, vol. 18(4), pages 541-558, October.
  8. Boot, Arnoud W A & Thakor, Anjan V, 2001. "The Many Faces of Information Disclosure," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 1021-57.
  9. Detragiache, Enrica & Gupta, Poonam, 2006. "Foreign banks in emerging market crises: Evidence from Malaysia," Journal of Financial Stability, Elsevier, vol. 2(3), pages 217-242, October.
  10. Enrica Detragiache & Poonam Gupta, 2004. "Foreign Banks in Emerging Market Crises," IMF Working Papers 04/129, International Monetary Fund.
  11. Chen, Yehning & Hasan, Iftekhar, 2006. "The transparency of the banking system and the efficiency of information-based bank runs," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 307-331, July.
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