Bank risk transparency wanted

Published in The Australian Fiancial Review

The November Group of 20 industrialised nations summit produced a communique that includes 47 action items aimed at improving early warning systems in the global banking system (“G20 backs new growth push”, November 17) Apparently not included is the single most effective, practical and inexspensive transparency measure possible. World leaders should demand nothing less than a permanent bank watch website where all banks in the world must report daily their exposure to wide-ranging movements in all the economic variables to which they are exposed.

This transparency measure will forever immunise  the global banking system against excessive risk taking in the most effective way possible. Such a website could easily produce and display net market risks across regions and banking sectors.

The first step involves agreement on a sensible standard for measuring the various risk components.

No astute risk engineer or scientist in the finance industry or academia will doubt the effectiveness of this transparency measure. True risk transparency will enable the market to self-regulate risk taking continuously. Excessive risk taking will be quarantined automatically.
preventing systemic failure.

It will be interesting to hear any objections. Which bank will admit it cannot produce this data? Is any bank now claiming the right to speculate in darkness? Has any regulator demonstrated it alone can be trusted to control bank risk?

Published version - AFR - 21 Nov 2008

Tags: bank risk, bank transparency, banks, G20, global banking system, global financial system, Group of 20