Friday, March 30, 2012

UK's Asset Protection Scheme confirms sell-side wants ultra transparency too

In the HM Treasury's review of its performance during the financial crisis, it description of how the Asset Protection Scheme was implemented ends for all time the debate over does the sell-side want ultra transparency into each bank's asset, liability and off-balance sheet exposure details.

With limited in-house expertise, the Treasury turned extensively to external advisers and experts....

A senior external advisor observed 
[The] APS was a project on an unprecedented scale. [The] Treasury was dealing with bank books which were hugely complex, banks themselves did not understand them [...]. 
Treasury and their financial advisers wanted as much detail and data as they would need for securitisation. They were incredibly data hungry.”
My bet is Treasury and its financial advisers wanted the exposure details synonymous with ultra transparency.

The fact that Treasury turn to market participants to analyze the exposure details confirms two other observations.
  • Market participants know how to transform the large amount of data released under ultra transparency into useful, relevant information; and
  • Regulators can piggy-back off the expertise of the market participants.
Regular readers will recall that under my blueprint for saving the financial system, your humble blogger recommends that regulators piggy-back off the market participants' ability to transform the data released under ultra transparency into useful, relevant information.  

This should be done not only in times of crisis, but also as part of the ongoing conduct of micro- and macro-prudential regulation.

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