As we all know, full information is a fundamental requirement of free and competitive markets. More particularly, financial institutions and individual investors must be well informed about their own and their counterparties’ exposures, the nature of new financial instruments, and the extent of overall market liquidity.
I believe that banks and other financial institutions could significantly improve their disclosures by providing more information to the market about their risk management policies and practices and about the values of internal risk measures. At present, the market seems to grant great weight to bank regulatory capital ratios that are only crude indicators of an institution’s risk profile.