Mr. Maijoor confirmed this blog's argument that it was the lack of transparency into the structured finance securities and who held them that triggered the solvency crisis that began on August 9, 2007. He then suggested that a similar lack of transparency into bank sovereign debt holdings threatens to exacerbate the solvency crisis.
Regular readers know that for banks adequate disclosure is current asset and liability-level data. It is only with this data that market participants can assess the risk of the banks for themselves.
The head of Europe’s markets regulator warned banks to be consistent in their valuations of sovereign debt amid concern some lenders have failed to record sufficient losses on Greek bonds.
Steven Maijoor, chairman of the European Securities and Markets Authority, likened the lack of transparency about banks’ individual holdings of government debt to the subprime mortgages that triggered the credit crisis.
“Lack of transparency regarding exposures to subprime mortgages created a situation of uncertainty about the financial positions of banks,” he said in a speech in Vienna today, according to a transcript released by ESMA on its website. Recently, “a lack of transparency from banks on their exposures to sovereign debt and related instruments are generating new suspicions about the conditions of individual banks and this requires similar answers in terms of transparency.”