“There is still a powerful sense around – fair or not – of a whole society paying for the errors and irresponsibility of bankers; of impatience with a return to 'business as usual’ – represented by still-soaring bonuses and little visible change in banking practices.” He added: “The best outcome from the unhappy controversies at St Paul’s will be if the issues raised… can focus a concerted effort to move the debate on and effect credible change in the financial world.”Ultimately, the credible change is requiring banks to disclose their current assets, liabilities and off-balance sheet exposures. It is only with this detailed disclosure that market participants can assess the risk of the banks and exert market discipline.
As MF Global showed, the financial regulators have not learned from the solvency crisis that began on August 9, 2007 that they must stop excessive risk-taking.
It is only when the other market participants, including competitors, have the detailed data that they can exert the necessary market discipline and stop the excessive risk-taking at the time the risks are beginning to build.
It is only when the other market participants, including competitors, have the detailed data that banks will shrink in size to what is necessary to support the economy and not what is necessary to support outsized compensation packages -- disclosure shrinks these compensation package by effectively eliminating the excessive risk used to achieve the compensation.