In addition, Mr. Kohn commits himself and the other members of the FPC to learn about transparency. He even urges graduate students at the London School of Economics to focus their research on transparency and its role in enhancing financial stability.
As regular readers are familiar with and the graduate students will quickly find out, this blog has provided the seminal work on transparency under the FDR Framework.
The parsimonious FDR Framework combines the philosophy of disclosure with the principal of caveat emptor (buyer beware). Specifically,
- Governments are responsible for ensuring that market participants have access to all the useful, relevant information in an appropriate, timely manner; and
- Market participants have an incentive to use this information when making and monitoring an investment since under caveat emptor they are responsible for any gains or losses on the investment.
- Issue: Clarity is the purpose of disclosure
- Issue: Information Overload, complexity and other objections to disclosure
- Issue: What should be disclosed and when versus red herrings like revealing proprietary business strategies or how a bank values individual assets
- Issue: Market discipline
- Issue: Contagion
- Issue: Disclosure is not sufficient by itself to restore financial stability
- Issue: Cost of disclosure versus Benefit
- Posts: Thank You Andy Haldane
- Issue: Role for regulators when there is disclosure that allows financial institutions to actually face market discipline