terça-feira, março 16, 2010

Regulating banks? Kiss and Tell !

What should be the fundamental principles of banking and financial regulation?

1. KISS, keep it simple stupid (or the more politically correct, keep it small and simple)
2. TELL, go for transparency, simplify the accounting, put everything on the Balance Sheet, gross assets and liabilities, but and mostly the gross contingent liabilities

The Aleph Blog has a number of very interesting suggestions, including:
… accounting has to be more conservative…
… More transparency is needed everywhere...

PPP Lusofonia comments : 
The first rule of Liquidation Analysis is to put all actual and contingent liabilities on the balance sheet and to shrink the actual and contingent assets. In other words, no netting, presume that all paying counterparties will fail, not the receiving counterparties will insist on getting their money, NOW! , by immediately invoking cross-default clauses.
Banks, aother finance companies, and companies receiving Governtment taxpayer support should all be required to publish such worst case Liquidation Analysis, monthly or at least quarterly.

This way, we won´t have to wait for the tide to go out to see who’s swimming without bathing trunks… as Warren Buffet says.

SEE Kiss & Tell in banking,   Peter Koenig, 1988 Euromoney version ,
and the consequences of increased banking competition.