After Libor Scandal, banks need to provide ultra transparency to restore trust

In his Telegraph column, Jeremy Warner observes

There is no industry in all commerce that relies as much on public trust and reputation for probity as banking. We have seen what happens when trust is lost: we get the legion of banking runs that lie at the heart of the financial crisis; people run for the hills and the economy grinds to a halt....

Entrusted with the public’s money, bankers have to be seen as whiter than white, pillars of their community and morally beyond reproach. All these old-fashioned virtues seem to have been lost in pursuit of the easy rewards of international finance. “My word is my bond” – once one of the sacred principles of City finance – has become reduced to a laughable parody of itself.....

We already know that at least 20 other banks are under investigation for alleged manipulation of interbank interest rates, including most of the other UK high street banks....  

That these practices appear to have been endemic, not just at Barclays, but across a wide range of international banks, neither excuses nor explains what happened.

Please re-read the highlighted text again as Mr. Warner cuts to the heart of the problem and why requiring banks to provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposure details is the only solution.

Ultra transparency allows sunlight to shine in all the opaque corners of the banking system and acts as a disinfectant with regards to bad behavior.

Ultra transparency works because no longer are the banks protected from market discipline by the regulators, but instead the banks are subjected to true market discipline.

Regular readers recall that up until the 1930s, disclosing all of your exposure details was the sign of a bank that could be trusted as the bank way saying it could stand on its own two feet.

If we are going to restore trust, it is time we adopt this philosophy.