Summary of an article entitled Risk Disclosure by Financial Institutions
published in the Bank of Japan Quarterly Bulletin of February 1997 BANK OF JAPAN,
COMMUNICATION, 28/2/97.
Introduction
Public disclosure by financial institutions has long provided information about
business performance through the publication of financial statements. In recent years, however, a
number of financial institutions have come to focus on disclosure of a wider range of
information, including their management policies. This is partly attributable to the expansion of
derivatives transactions, which has made risk management techniques increasingly important in
the management of financial institutions, and which has thereby encouraged financial institutions
to improve such techniques. Accordingly, individual financial institutions have been motivated
to reveal voluntarily their risk exposures and risk management methods in order to win a
favorable assessment from market participants. Disclosure thus brings into play a check
mechanism inherent in financial markets (hereafter referred to as the market check mechanism)
that disciplines management of financial institutions, and thereby helps to enhance the efficiency
and transparency of the markets and to stabilize the financial system.
This report examines the disclosure of information on risks of financial
institutions, with an overview of the current practices and future issues. It is intended to serve
market participants, the beneficiaries of the information disclosed.