Wednesday, May 9, 2012

Spain's nationalization of Bankia makes case for ultra transparency

In his Telegraph column, Ambrose Evans-Pritchard discusses the reason why Spain stepped up to nationalize Bankia.
The forced rescue was ordered by premier Mariano Rajoy after auditors Deloitte refused to sign off the bank's books, amid allegations of €3.5bn (£2.8bn) of inflated assets. 
By definition, the Spanish regulators who examine the bank had to have known about the assets and did not communicate their existence to the market.
Half of the bank's €37bn of property exposure is deemed "problematic" by regulators.... 
What else do the Spanish regulators know about that is hidden on and off the balance sheets of Bankia and the other banks in the Spanish banking system?
"The Spanish have denied until now that there was any need for fresh capital so it comes as a surprise. It wasn't intended, and that is a worry," said Guy Mandy, credit strategist at Nomura.
This disclosure failure highlights why all banks must be required to provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposure details.

It is only with this disclosure that the regulators' information monopoly is ended and market participants can assess each bank.

It is only with this disclosure that regulators will no longer be able to gamble with financial stability as market participants can be assured that based on their own independent assessment of the banks they will not be surprised.

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