Regular readers know that if banks were required to provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposure details this would eliminate the need for a significant amount of regulation.
Included on the list of redundant regulation would be almost all of the regulations required under Dodd-Frank including, unfortunately, the Volcker Rule as well as the need for regulators to have anyone with an office at the banks.
Why would so much regulation disappear if there were ultra transparency?
Because a significant percentage of regulations are designed to handle problems caused by the simple fact that current disclosure practices leave banks resembling, in the words of the Bank of England's Andrew Haldane, 'black boxes'.
For example, there is the requirement that where possible banks trade derivatives on clearinghouses. This regulation makes sense in our current opaque world where banks do not have the ability to assess the riskiness of the counter-party if it is a bank and we would like to create some price transparency.
However, this regulation makes no sense when there is ultra transparency and both banks in the transaction can assess the riskiness of the other bank. It is their responsibility to not have more exposure to the bank counter-party than they can afford to lose given the riskiness of the bank counter-party.
More importantly, not only can both bank in the transaction assess their counter-party's risk, but the market can assess what it thinks of the change in risk of both banks from entering into the transaction. In addition, because both banks had to disclose the trade, there is price transparency as everyone can see the price the trade was done at.
Treasury Secretary Timothy F. Geithner has challenged bankers to give him specifics on their longstanding complaint that the Dodd-Frank Act is imposing costly, confusing and burdensome regulations on them, according to four people familiar with the matter.
The Federal Advisory Council, a group of bank executives from each of the 12 Federal Reserve districts, complained to Geithner at a May 10 meeting about overlapping and duplicative rules, according to the people.
Geithner urged the bankers to prepare a study with examples of regulatory burden, said the people, who are preparing the report.
Geithner offered to use his ability to reach across agencies to better coordinate and streamline rules if he found the report convincing, according to the people, who asked not to be identified because they weren’t authorized to discuss the study.
The complaints include the handling of so-called stress tests of banks’ ability to weather a crisis, capital requirements and restrictions on mortgage servicing.