In the last week, the Wall Street Journal (see here), the Financial Times (see here), the NY Times (see here and here), and now the Telegraph in Liam Halligan's column have called for banks to provide detailed disclosure and explained why this disclosure is necessary for ending the global financial crisis which began on August 9, 2007.
Why has the international call for detailed disclosure occurred now?
Because global policy makers and financial regulators have tried everything else and these other solutions have failed to restore investor confidence or end the global financial crisis (see current Eurozone sovereign debt and bank solvency crisis or Chinese bank solvency problem).
[The] only chance eurozone banks have of raising serious capital is if they’re forced, under threat of custodial sentences for bank executives, to disclose fully their detailed asset and liability data. Investors could then make accurate assessments and decide which banks to back.
Stress tests, carried out by the authorities, are merely political damage-limitation exercises. They’re also deeply counter-productive. By forcing investors to rely on regulatory judgments, governments burden themselves with an obligation, possibly even a legal obligation, to provide bail-outs. After all, why should creditors lose, having supported a bank which the government said was solvent?
That’s why the failure to insist on full disclosure – a failure resulting, of course, from the cosy, nay corrupt, financial links between Western banks and political parties – is so damaging.
The ongoing lack of transparency gums up the inter-bank market, the wholesale lending channel, so denying firms and households of much-needed capital. It also generates huge and ongoing investor angst, making it impossible for banks to refinance, while complicating efforts to force creditors to face up to their mistakes.
Markets don’t work without information.
Instead of insisting such information is widely available, eurozone governments are engaged in a cover-up. Stagnating growth and rising loan defaults are threatening bank failures while, in turn, exacerbating a sovereign debt fiasco. Full disclosure of bank liabilities is essential to break the deadlock.
Instead of grasping this nettle, euroland’s “leaders” talk of “leveraging” the EFSF, allowing it to borrow. Another wheeze would see the rescue fund being granted a “temporary” banking licence, granting it a direct credit line from the European Central Bank. That is probably what will happen. Unable to get a bigger bail-out fund agreed by various parliaments, the single currency’s architects will raid the ECB instead, attempting to douse the flames with a hydrant of “virtually printed” money, while putting the central bank’s capital at risk.
Such policy pyrotechnics, though, won’t address the real problem.... Both France and Germany say they want a “durable fix” to the turmoil that has driven several nations to the brink of default, while seriously rattling global markets.The only durable fix is detailed disclosure of each bank's assets and liabilities.
I look forward to working with the global policy makers, financial regulators and banks and coordinating the creation and on-going operation of a durable fix. This fix will be a data warehouse that provides market participants access for free to each bank's detailed disclosure of its assets and liabilities.