Tuesday, July 23, 2013

Bank earnings have never been more complicated

In his Fortune column, Allan Sloan asks the simple question of how can Washington regulate the big banks when the earnings release of a large bank like Citi is a 100+ page opaque document.

As shown by our current financial crisis, Washington cannot successfully regulate the big banks.

One of the reasons for requiring the banks to provide ultra transparency is it subjects the big banks to market discipline.  Market discipline that links a bank's cost of funds to the risk it is taking.

This market discipline also strengthens Washington's regulatory discipline and improves the chances that it is successful by allowing Washington's regulators to tap the market for analytical expertise in understanding exactly what the banks are doing.

After all, who better to analyze Citi than JP Morgan and visa versa. 

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