The latter element to our supervisory approach depends on market participants acting in their own self interest when dealing with counterparties. That involves understanding the risks of engaging in business and properly pricing transactions. Reliable financial information is an essential ingredient to efficient market discipline. Such information would clearly convey the risk profile of the institution it represents.
In its absence, markets are more susceptible to distortions caused by rumors, misinformation, or failures to disclose. Many believe the dearth of information on risk profiles reflects the market’s reliance on the federal safety net. Such information would be available if participants were not, to a large extent, indemnified from loss.