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09 December 2011

BIS: Financial stability and risk disclosure


Keynote address by Mr Jaime Caruana, General Manager of the Bank for International Settlements, to the FSB Roundtable on risk disclosure.

High-quality risk disclosure is good for markets, because it helps investors make more informed decisions. It is good for prudential supervisors, because it makes banks more accountable to both supervisors and investors. And it is good for financial stability, because it reduces the chance that unexpected events will disrupt the system.

To be effective in promoting market discipline, disclosure must be complemented by strong incentives for counterparties to engage in monitoring. The public sector's role in promoting transparency arises from a number of market failures, including the externalities to be gained from common standards, the "free rider" problems that may lead to too little investment in producing and gathering financial information, and the tendency of markets to overreact to bad news when the information environment is clouded.

Guided by these considerations, the Financial Stability Board and the Basel Committee on Banking Supervision have long supported improvements in transparency, through their work on accounting, disclosure templates and aggregate market data. At the same time, industry and investor representatives need to play a key role in developing disclosure standards. Accounting standards need to converge, standards for the discussion and analysis that accompany financial statements need to be established, and external auditors need to insist on higher-quality risk disclosures.

Full speech



© BIS - Bank for International Settlements


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