Imperfect markets The functioning of risk assessments system of banks is affected by distortions in markets namely dominance of large players, high asymmetry of information, and lack of market depth. The price manipulation by significant market players can distort the true market value of securities’ portfolio.
To make any meaningful assessment of market risk and encourage market discipline, the imperfections have to be removed from the financial markets. The regulator should have the capability to assess the price risk, and identify situations in which market values of portfolios have been over/ under stated by the regulated institution through price manipulation.