What Constitutes Appropriate Disclosure for a Financial Conglomerate?

34 Pages Posted: 11 Nov 2008

See all articles by Lawrence J. White

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2002

Abstract

This paper addresses the disclosure issues for financial conglomerates principally from the same perspective as that of the Basel Committee on Banking Supervision: that disclosure is important for the safety and soundness of banks. However, we reach substantially different conclusions with respect to three important disclosure issues: the role of market value accounting; the frequency of disclosures; and the role of subordinated debt.We start by asking why any special disclosure might be required for financial conglomerates. This question immediately leads to a discussion of what is special about financial conglomerates. We also address the question of, "Disclosure to whom?" There are at least two potential audiences for information disclosures: financial regulators; and the publicinvestors/creditors/customers of a financial conglomerate. Issues of the appropriate structure for a financial conglomerate, and the information revelation that should accompany that structure, are also raised. Finally, we return to the title topic: What constitutes appropriate disclosure for afinancial conglomerate. Unfortunately, by turning its back on the three most important steps that could be taken to improve information disclosure -- mandating market value accounting (MVA) for banks' reports to regulators, aiming toward daily submission of these reports, and requiring the issuance of subordinated debt -- the Basel Committee has fundamentally undermined its efforts to enhancebanks' safety and soundness.

Keywords: Banks, Disclosure, Regulation, Basel II, Market Value Accounting, Subordinated Debt

Suggested Citation

White, Lawrence J., What Constitutes Appropriate Disclosure for a Financial Conglomerate? (November 2002). NYU Working Paper No. S-FI-02-14. Available at SSRN: https://ssrn.com/abstract=1298835

Lawrence J. White (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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