Many policymakers now believe that public disclosure of additional information concerning the financial condition, risk exposures, and supervisory assessments of firms would be beneficial to financial stability. Greater transparency would enable market participants to better assess the risks of counterparties and thereby exert more effective market discipline.
Increased transparency about supervisory practices would also allow financial firms to have greater confidence about the “rules of the road”. This would reduce regulatory uncertainty and the inefficiencies of regulatory arbitrage as firms try to guess what’s on the minds of regulators. When firms have a better understanding of regulatory requirements, they can appropriately evaluate the economic costs and benefits of their decisions.