Changes are needed to plug an ‘information gap’ that currently makes it difficult to judge the relative risk exposure of different banks before problems become apparent.
In recent research, a team of risk experts at Nottingham University Business School concluded that any such revision to the regulations should ideally include requirements to disclose specific categories of information that are useful for the evaluation of risk exposure.
The Northern Rock crisis has already seen customers withdraw over £2bn of their savings from the bank since it applied to the Bank of England for emergency funds on September 13. Northern Rock’s share price had fallen by one third by close of business on Friday, September 14, and fell even further in trading on Monday, September 17.
Margaret Woods, Associate Professor at Nottingham University Business School (NUBS), said the crisis has raised a number of issues relating to the economics of banking, but also questions of risk management and the related accounting regulations.
She said: “Press comment has so far ignored one very important dimension which is the subject of research within NUBS, and that is the nature and usefulness of the information available to capital markets relating to a bank’s credit exposure and lending quality.
“NUBS researchers have identified significant variations in both the level and the usefulness of risk disclosures across the major world banks and also across the UK banking sector. The variations in disclosure are found in both bank trading books and banking books.
“Even for the very largest banks it is extremely difficult, if not impossible, for an outside party to assess aggregate risk exposures and compare this information with competitor institutions.
“The disclosures risk further potential dilution with the replacement of bank-specific accounting regulations (IAS 30) with generic disclosure rules under IFRS7. We believe that this results in a significant information gap that requires the attention of both banking and accounting regulators.
“Additionally, the adoption of sophisticated risk management systems within banking institutions does not negate, and may actually exacerbate the systemic risks within global financial markets. One obvious example is the internal use of Value at Risk models for control of market risk, which it has been suggested may increase the level of systemic risk.”
Mrs Woods said the problems highlighted by the Northern Rock crisis demonstrated the need for further consideration of:
•The role of the Bank of England as lender of last resort, and the risk of moral hazard that may encourage banks to take deploy increasingly risky strategies
•The relationship between bank liquidity and bank solvency, or the relative importance of cash flow versus collateral
•The potential limitations of existing capital-based banking regulations which largely ignore liquidity issues
•The case for extending the Basel regulatory requirements to incorporate restrictions on a bank’s dependence upon specific sources of funding
•The interface between institutional risk management and systemic risk in the financial markets
Emma Thorne | alfa
Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)
Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
The formation of stars in distant galaxies is still largely unexplored. For the first time, astron-omers at the University of Geneva have now been able to closely observe a star system six billion light-years away. In doing so, they are confirming earlier simulations made by the University of Zurich. One special effect is made possible by the multiple reflections of images that run through the cosmos like a snake.
Today, astronomers have a pretty accurate idea of how stars were formed in the recent cosmic past. But do these laws also apply to older galaxies? For around a...
Just because someone is smart and well-motivated doesn't mean he or she can learn the visual skills needed to excel at tasks like matching fingerprints, interpreting medical X-rays, keeping track of aircraft on radar displays or forensic face matching.
That is the implication of a new study which shows for the first time that there is a broad range of differences in people's visual ability and that these...
Computer Tomography (CT) is a standard procedure in hospitals, but so far, the technology has not been suitable for imaging extremely small objects. In PNAS, a team from the Technical University of Munich (TUM) describes a Nano-CT device that creates three-dimensional x-ray images at resolutions up to 100 nanometers. The first test application: Together with colleagues from the University of Kassel and Helmholtz-Zentrum Geesthacht the researchers analyzed the locomotory system of a velvet worm.
During a CT analysis, the object under investigation is x-rayed and a detector measures the respective amount of radiation absorbed from various angles....
The quantum world is fragile; error correction codes are needed to protect the information stored in a quantum object from the deteriorating effects of noise. Quantum physicists in Innsbruck have developed a protocol to pass quantum information between differently encoded building blocks of a future quantum computer, such as processors and memories. Scientists may use this protocol in the future to build a data bus for quantum computers. The researchers have published their work in the journal Nature Communications.
Future quantum computers will be able to solve problems where conventional computers fail today. We are still far away from any large-scale implementation,...
Pillared graphene would transfer heat better if the theoretical material had a few asymmetric junctions that caused wrinkles, according to Rice University...
15.11.2017 | Event News
15.11.2017 | Event News
30.10.2017 | Event News
20.11.2017 | Earth Sciences
20.11.2017 | Earth Sciences
20.11.2017 | Life Sciences