Archbishop of Canterbury Justin Welby on long-term solution to financial crisis: "ancient virtue of transparency"

The Telegraph reports when asked what the long-term solution to the financial crisis is, the Archbishop of Canterbury and member of Parliament's commission on banking standards, Justin Welby, replied: the "ancient virtue of transparency".

Regular readers know your humble blogger strongly agrees.

He told the audience of Lords, MPs, bankers and businessmen that Britain was in the grip of a “failure of confidence” - rebuilding, he said, is “essentially an ethically based activity”....  

Having been asked by the Bible Society to come up with “long-term solutions to the financial crisis”, the Archbishop was practical. Sir Mervyn King told the Commission that a high proportion of bad loans in some of our major banks have not yet been recognised. 

The answer, said Archbishop Welby, was “the obvious and ancient virtue of transparency”: if banks are forced to recognise their losses, they will also have to recapitalise.... 

“Balance sheets that are not transparent, that do not recognise the full potential of loan losses, are not only bad in themselves but create a sense of fear and overhang in the markets.”

Please re-read Archbishop Welby's comments as he nicely summarizes why we need transparency to restore confidence and remove the sense of fear and overhang in the markets.

Like your humble blogger, the Archbishop calls for banks to recognize their losses today and then recapitalize over the next several years (the long-term) by rebuilding their book capital levels.  Book capital can be rebuilt through a combination of retention of 100% of pre-banker bonus earnings and stock issuance.