However, adequate market discipline can be brought to bear only if investors have information that is sufficient in quantity, reliability and timeliness. As my colleague Susan Phillips has said: “Well-managed firms can benefit if better disclosure enables them to obtain funds at risk premiums that accurately reflect lower risk profiles.
Inadequate financial disclosures, on the other hand, could penalize well-managed firms, or even countries, if market participants do not trust their ability to assess firms’ or countries’ fundamental financial strength.” I indicated that historical experience teaches that volatile short-term capital flows, particularly those involving banks, are often at the heart of banking crises.