Financial Disclosure in the Banking, Insurance and Securities Sectors: Issues and Analysis

THE JOINT FORUM BASEL COMMITTEE ON BANKING SUPERVISION INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS Financial Disclosure in the Banking, Insurance and Securities Sectors: Issues and Analysis May 2004 Table of contents I. Executive summary......................................................................................................... 1 II. Introduction ..................................................................................................................... 3 III. The state of disclosure .................................................................................................... 4 A. Market risk in trading activity ................................................................................. 5 Fisher II report recommendation............................................................................ 5 Current disclosures ................................................................................................ 6 Investment community and firm views ................................................................... 7 Initiatives by standard setters and regulators ........................................................ 8 B. Firm-wide exposure to market risk......................................................................... 9 Fisher II report recommendation............................................................................ 9 Current disclosures ................................................................................................ 9 Investment community and firm views ................................................................. 10 Initiatives by standard setters and regulators ...................................................... 10 C. Funding liquidity risk ............................................................................................ 11 Fisher II report recommendation.......................................................................... 11 Current disclosures .............................................................................................. 11 Investment community and firm views ................................................................. 12 Initiatives by standard setters and regulators ...................................................... 13 D. Credit risk............................................................................................................. 14 Fisher II report recommendation.......................................................................... 14 Current disclosures .............................................................................................. 14 Investment community and firm views ................................................................. 16 Initiatives by standard setters and regulators ...................................................... 17 E. Insurance risk ...................................................................................................... 18 Fisher II report recommendation.......................................................................... 18 Current disclosures .............................................................................................. 19 Investment community and firm views ................................................................. 19 Initiatives by standard setters and regulators ...................................................... 19 IV. Development of disclosure concepts ............................................................................ 21 Risk concentrations....................................................................................................... 21 Loss mitigation of credit exposures............................................................................... 22 Performance measures for credit exposures ................................................................ 22 Potential credit exposure .............................................................................................. 23 Funding liquidity risk ..................................................................................................... 23 Market liquidity risk........................................................................................................ 25 V. Hedge Funds ................................................................................................................ 25 VI. Future Work .................................................................................................................. 26 Appendix 1: 2002 Annual Reports Included in the Survey ..................................................... 27 Appendix 2: Members of the Working Group on Enhanced Disclosures ............................... 29 1 Financial Disclosure in the Banking, Insurance and Securities Sectors: Issues and Analysis I. Executive summary 1. In June 1999