Bank Collateral Disclosure Will Improve Risk Appraisal, BIS Says
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Banks should disclose the assets they pledge as collateral for loans so that investors have a better gauge of risk, according to a committee of the Bank for International Settlements.
Lenders could be asked to carry out stress tests to evaluate levels of assets they have tied up, known as encumbrance, under adverse conditions, the committee said in a report. Banks that commit large amounts of collateral could be asked to contribute more to deposit guarantee arrangements, according to the report.