You'll recall that the other day I praised the Frank Partnoy and Jesse Eisinger article in the latest Atlantic on the problems with bank disclosure and regulation. John Carney has replied to Partnoy and Eisinger with an interesting analysis:
Eisinger and Partnoy think that a regulatory regime that threatened bank executives with jail time if it turned out that their financial statements weren't accurate and adequate would go a long way to clear away the black-boxiness. They want this standard of accuracy and adequacy to be intentionally left vague, figuring that prudent chief executive types would err on the side of better disclosure. ...
I'm not sure that's really the way things would go. The threat of jail might result in even less disclosure because it is obviously easier to prove negligence—the standard Eisinger and Partnoy would employ—for actual errors than for omissions. The best way to avoid saying things that aren't true is not to say anything at all. This is part of the reason we're in the mess to begin with.
It's no coincidence that the era of bank financial opacity has coincided with the era of securities litigation. Serious litigation reform that made it far more difficult for the securities bar to bring cases against companies for what is said in public filings would probably improve the filings. Repealing Regulation FD, for starts, would allow a company like Wells Fargo to actually answer questions put to it by people like Eisinger and Partnoy, rather than just kicking them back to the annual statement filed with the SEC.
If investors really would value more disclosure from banks—and I have no doubt that they would—banks would compete for better disclosure, absent some kind of market friction. So if banks aren't competing for investor dollars with better disclosure, something must be standing in the way. It's not collusion. Believe me,Bank of America would love to crush JP Morgan Chase with far better disclosure practices. If Eisinger and Partnoy realize that " these changes would be for the banks' own good," you can be the executives at these banks realize it also. So it's likely the very regulations already in place that are standing in the way.
You need to read both.
