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
How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung
Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT
In recent years, lasers with ultrashort pulses (USP) down to the femtosecond range have become established on an industrial scale. They could advance some applications with the much-lauded “cold ablation” – if that meant they would then achieve more throughput. A new generation of process engineering that will address this issue in particular will be discussed at the “4th UKP Workshop – Ultrafast Laser Technology” in April 2017.
Even back in the 1990s, scientists were comparing materials processing with nanosecond, picosecond and femtosesecond pulses. The result was surprising:...
Have you ever wondered how you see the world? Vision is about photons of light, which are packets of energy, interacting with the atoms or molecules in what...
A multi-institutional research collaboration has created a novel approach for fabricating three-dimensional micro-optics through the shape-defined formation of porous silicon (PSi), with broad impacts in integrated optoelectronics, imaging, and photovoltaics.
Working with colleagues at Stanford and The Dow Chemical Company, researchers at the University of Illinois at Urbana-Champaign fabricated 3-D birefringent...
In experiments with magnetic atoms conducted at extremely low temperatures, scientists have demonstrated a unique phase of matter: The atoms form a new type of quantum liquid or quantum droplet state. These so called quantum droplets may preserve their form in absence of external confinement because of quantum effects. The joint team of experimental physicists from Innsbruck and theoretical physicists from Hannover report on their findings in the journal Physical Review X.
“Our Quantum droplets are in the gas phase but they still drop like a rock,” explains experimental physicist Francesca Ferlaino when talking about the...
The Max Planck Institute for Physics (MPP) is opening up a new research field. A workshop from November 21 - 22, 2016 will mark the start of activities for an innovative axion experiment. Axions are still only purely hypothetical particles. Their detection could solve two fundamental problems in particle physics: What dark matter consists of and why it has not yet been possible to directly observe a CP violation for the strong interaction.
The “MADMAX” project is the MPP’s commitment to axion research. Axions are so far only a theoretical prediction and are difficult to detect: on the one hand,...
16.11.2016 | Event News
01.11.2016 | Event News
14.10.2016 | Event News
07.12.2016 | Health and Medicine
07.12.2016 | Life Sciences
07.12.2016 | Health and Medicine