Monday, June 27, 2011

Bank for International Settlements calls for current asset and liability-level disclosure

A Reuters' article reports that the Bank for International Settlements (BIS) is calling for financial institutions to have to disclose their current asset and liability-level data.
BANK DATA FRAMEWORK 
The BIS welcomed efforts by Britain, the European Union, the United States and other countries to set up a new breed of watchdogs to spot broad, systemic risks to financial stability and tackle them with "macroprudential" tools. 
Such tools include forcing banks to top up capital cushions in good times for tapping when markets turn sour, a step that also may help to cool overheated credit markets. 
"Nonetheless, a substantial amount of trial and error is likely to be needed for the time being, given the still-limited history of macroprudential policy usage," the BIS said. 
The BIS report said gaps are also evident in both the analytical framework and company-level and aggregate data which policymakers will need to take action. 
An international data-sharing framework should be set up to give supervisors a common view of the balance-sheet positions of the largest global banks, the report said. 
This was crucial when the 10 biggest banks each have about 3,500 subsidiaries in about 80 countries. 
"A key data gap during the crisis was the lack of information on banks' asset and liability positions, broken down by currency, counterparty sector, counterparty country and instrument type," the report said. 
Regulators must be able to jointly analyze the balance sheets of many banks to determine exposures to particular asset classes or concentrations. 
Under the FDR Framework, this blog has described why it is important that not only the regulators have access to this data, but also market participants.


David Cameron, Mervyn King and the Economist magazine have recently made the case for sharing this data with market participants.  Specifically, they want the data disclosed to eliminate fear borne contagion.  With access to the data, the market can determine who is solvent and who is not and adjust appropriately.

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