UK's Financial Services Authority turns to disclosure

An article by David Enrich in the Wall Street Journal showed how British regulators are turning to disclosure as the solution for retaining investor confidence in the UK banks.

Even more important than regulators adopting disclosure is that bank's perceive there is an advantage to being at the forefront of disclosure.

British regulators are pushing U.K. banks to publicly reveal more information about their exposures to troubled European countries such as Belgium, a sign of how concerns about the euro zone are spreading beyond southern Europe. 

Lloyds Banking Group PLC on Thursday disclosed its holdings of debt tied to the Belgian government and local financial institutions as part of the bank's second-quarter results. 

Executives said they made the disclosure at the behest of the Financial Services Authority. 

"It was the FSA's suggestion that Belgium be added to the list," said Tim Tookey, Lloyds's chief financial officer. "That is the sole reason" the bank started making the disclosures. 

Sarah Bailey, an FSA spokeswoman, said the regulatory agency has been talking with Lloyds and other British banks about ways for them to improve their disclosures about their holdings of debt tied to cash-strapped countries—a major source of angst among many investors and regulators. The FSA "is looking for greater consistency so the market has clearer information" about banks' holdings, she said. 

One possibility, Ms. Bailey said, is for banks to start reporting detailed information about their exposures to countries whose government bond yields have climbed a certain amount above the yields on U.K. government bonds. 

"This is just a suggestion," Ms. Bailey said. "It's not an instruction." She said the talks with banks are continuing and that details haven't been ironed out yet. 

Those discussions prompted Lloyds to reveal its Belgium exposures. Belgium is coming under investor pressure because of its high debt levels and concerns about political dysfunction. In one indication of investors' growing anxiety, the cost of buying insurance against the Belgian government defaulting on its debts has soared 61% since the beginning of July, according to data provider Markit. 

... Mr. Tookey said Lloyds moved faster than other U.K. banks to report its Belgian holdings in order "to make sure we were right at the forefront of disclosures."