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How to make banks more transparent
19th May 1999 Back to News Menu
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One of the greatest shocks in the wake of the Asian crisis was the realization that nobody really knew what was going on in the banks. When it comes to money, most people in the region keep the details to themselves. However, this lack of transparency also had it's dark side. Some countries used their banking and finance systems as a cover for crony deals, favoritism, and the hiding place of financial mistakes and problems. With more disclosure in the industry, the warning signals could have been seen much earlier.In an excellent article here, Jerome Fons from Moody's Investment Service makes a case for a relationship between Moody's ratings and the Transparency International's Corruption Ratings, referred to in an earlier item. According to Fens...
We argue that weak transparency increases funding costs, especially in times of financial distress. Yet transparency can only help prevent a financial crisis and should not be seen as a cure for systems already under stress. Poor transparency is typically found in societies characterized by unchecked economic power or those with corrupt business practices. Deep-seated cultural differences suggest that it may be many years before changes in transparency can occur.He describes the role of "soft data" in coming to conclusions about a country's financial stability in countries where there are few regulatory controls and advanced reporting requirements, reasons why "some banks (and even some regulators), may not want transparency", examples of poor transparency, and its role in the East Asian crisis. This is accompanied with some useful graphs and comparative tables. Additionally, a piece from the Basle Committee on Banking Supervision on "Enhancing Bank Transparency" is available here, both as a summary and in in full form in PDF format. According to the Basle Committee six broad categories of information need attendance to provide good transparency. These are:
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The views expressed here may not necessarily reflect those of Orient Pacific Century or partners of the Asia Pacific Management Forum
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