Such discipline is not possible without meaningful public disclosure of a bank’s financial condition. I think we would all agree that there is no greater enemy to a stable financial marketplace than a lack of confidence, and surely nothing undermines confidence more than a lack of reliable information. Discipline by the market is not always pleasant – a lesson many companies have re-learned recently. Yet better quality information, or what we often call transparency, can boost the confidence of depositors, investors, and creditors, and it can contribute to stability by encouraging banks to adopt a more proactive approach to managing their risks. In this regard, just last month the Basel Committee published the results of a two-year study on public disclosure practices of internationally active banks as a guide to the industry and accounting standards setters on areas where disclosure can be improved. BIS Review 35/2001  3  While many countries have made great progress over recent years to improve the quality and level of disclosure, disclosure practices have not kept up with the changes in how banks manage their businesses and in how they measure and mitigate their risks. To improve this situation, I believe that the notions of what is public versus proprietary information must change. It is critical to approach the question of disclosure as users of financial statements. Shareholders, creditors, and counterparties cannot understand the risks of their own exposures to a bank until they first understand that bank’s appetite for risk and its approach to, and methodologies for, managing risk.
William J McDonough: The role of financial stability An address by Mr William J McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Basel Committee on Banking Supervision, at the XIII International Frankfurt Banking Evening, Frankfurt, Germany, 3 May 2001. *  *  *  Mayor Roth, President Duisenberg, and distinguished guests… It is an honor to address the thirteenth International Frankfurt Banking Evening in a setting so rich in history and tradition. I have been told that this stately building is more than just the busy town hall for a major European city, it is also an ever-present witness to culture and history, having hosted banquets and celebrations for almost six hundred years honoring coronations and the visits of Presidents and Prime Ministers. Indeed, it seems highly appropriate that our dinner this evening, which recognizes the importance of banking and finance to this distinguished city’s heritage, is being held here, so close to one of Europe’s most historic marketplaces. Since medieval times, merchants have traveled great distances to participate in Frankfurt’s many fairs and markets. The wealth that those markets produced no doubt assisted in the development of increasingly sophisticated financial institutions and a stock market as early as the 16th century, plus several of the most storied banking houses in history. Those institutions, in turn, contributed to Frankfurt’s ascent to prominence by financing additional trade and commerce here and abroad.