Section 5: Improving Transparency

The three most important factors for ensuring fair and dynamic financial markets are ‘disclosure, disclosure and disclosure’. But just as markets depend on confidence and trust, which in turn depend on fair and equal access to information, Deven Sharma writes that there is also a need to balance comprehensiveness with clarity. This applies to rating agencies too and Standard & Poor’s has committed itself to increased transparency concerning ratings methodologies, models and performance.

Frank de Jonghe and Roeland Baeten report on Deloitte’s benchmarking studies of banks’ Pillar 3 disclosures on capital and risk management. They look forward to improvements that will stem from the latest Basel guidelines, for example increased granularity on regulatory adjustments to capital.

Viral Acharya sheds light on the rapid growth of ‘shadow banking’ in the US – a sector that needs to be tackled by regulators if a rerun of the 2007-09 crisis is to be avoided. He gives a detailed explanation of how the collapse in short-term funding following Lehman’s failure caused a systemic run on the $8000bn-plus shadow banking sector. Had the government not stepped in, more banks would have failed alongside Lehman.

Vincent Papa looks at current issues in accounting, for example the complex debate over how fair-value measurements should be applied during times of stress. The CFA Institute has been a long-standing proponent of the application of fair value for financial instruments, a view not changed by the recent crisis.

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