Transparency and the disclosure of risk information in the banking sector
| DOI | https://doi.org/10.1108/13581980510622063 |
| Date | 01 September 2005 |
| Pages | 205-214 |
| Published date | 01 September 2005 |
| Author | Philip M. Linsley,Philip J. Shrives |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Transparency and the disclosure of risk
information in the banking sector
Philip M. Linsley* and Philip J. Shrives
Received: 1st February, 2005
*The University of Hull, Scarborough Management Centre, Filey Road, Scarborough, YO11 3AZ, UK;
tel: +44 (0) 1723 357270, fax: +44 (0) 1723 357119; e-mail: p.linsley@hull.ac.uk,
Philip M. Linsley is a lecturer at the Uni-
versity of Hull specialising in finance and
risk management.
Philip J. Shrives is a principal lecturer at
Northumbria University specialising in
financial reporting.
ABSTRACT
KEYWORDS: Risk, disclosure, accounting,
annual report, Basel II
The essence of any bank is that it is a risk-
taking enterprise and therefore, as a part of
good corporate governance, it is expected that
relevant risk-related information will be released
to the marketplace. Currently, however, it is
suggested that there is insufficient disclosure of
risk information by banks and as a consequence
Pillar 3 of Basel II lays out a comprehensive
framework for risk disclosures with the intention
that this will enable stakeholders to assess the
risk profile of a bank. In addition, one outcome
of the UK company law review is that there
will be a requirement for all quoted companies
to discuss risks and uncertainties within the
annual report. This paper analyses these risk
disclosure requirements while also reviewing
current bank disclosure practices within the con-
text of this risk disclosure debate. The impor-
tant issues of disclosure of forward-looking risk
information, location of disclosure and proprie-
tary risk information are also discussed together
with their implications for the proposed disclo-
sure requirements.
INTRODUCTION
Banks disseminate significant amounts of
information which is then publicly avail-
able for use by shareholders and other sta-
keholders. There have, however, been calls
for even greater disclosure to occur to
ensure readers are fully able to assess the
performance of a firm. One aspect of this
disclosure debate centres on the issue of
risk reporting. If shareholders and other
interested parties are to be able to under-
stand the risk profile of the firm, they need
to receive information about the risks a
firm faces and how the directors are mana-
ging those risks. It is argued that, at pre-
sent, limited risk disclosure occurs and
therefore firms are not fully transparent in
this respect. The outcome of improved risk
transparency should ultimately be that it
enhances the ability of shareholders and
other stakeholders to manage their risk
positions.
Inevitably some of these risk disclosure
discussions have arisen out of the account-
ing irregularities uncovered at organisations
such as WorldCom, Xerox and Enron, but
this has not been the sole driver. Addition-
ally, it has been recognised that financial
institutions operate within increasingly
unpredictable and unstable external envir-
Page 205
Journal of Financial Regulation and Compliance Volume 13 Number 3
Journal of Financial Regulation
and Compliance, Vol. 13, No. 3,
2005, pp. 205–214
#Emerald Group Publishing
Limited, 1358–1988
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