EDTF beware; disclosure requirements for banks can also be used as camouflaging material.

Sir, Oliver Ralph writes: “Maybe one day banks may be trustworthy enough not to have publish annual reports that are hundreds of pages long”, “Excessive disclosure by banks eludes comprehension” June 1.

Indeed but it is clear that publishing annual reports that are hundreds of pages long does not make banks more trustworthy either. One-way to concealed bad behavior, is to bury it under hundreds of pages of mumbo jumbo.

Ralph refers also to the Enhanced Disclosure Task Force’s (EDTF) “recommendation 7, which asks the banks to describe risks in their business models.” Would that cause banks to prepare their own homemade list of weights they assign to the risks in their business? That could shed some light on what risks the banks are not considering in their business model… but frankly, mostly it seems like generating profitable employment opportunities for bad and good fiction authors.

And I set all these efforts against the background of the regulators and the banks having colluded in producing that masterpiece of financial disinformation, which is the leverage that in the numerator does not use assets but risk-weighted assets instead.

Few days ago, a leading American newspaper, citing another leading American newspaper in its editorial expressed “banks are significant safer than they were prior to the 2008 financial panic, with an average of $13 in capital for every $100 in assets for member banks of the Federal Deposit Insurance Corp”. That is false! It should have stated for every $100 in risk-weighted assets; and it should have reported the real undistorted leverage too.

Since the risk weighing not only distorts information but also the allocation of bank credit to the real economy, something that is even more dangerous, the EDTF should start by clearing this out with the Basel Committee, before allowing banks more mumbo-jumbo material under which to hide.