Transparency may have increased after the financial crisis, but it’s unclear how this has affected bank behavior.
It’s still unclear. While we’ve had a lot of attempts at transparency, we really don’t have any evidence of costs and benefits. It’s safer in one sense: regulators seem to be more aware of potential problems because they face greater accountability for their actions and inactions.
There’s a lot more regulation for financial institutions, as is evident from the Dodd-Frank Act, which contains 14,000 pages of regulation! The biggest attempt to increase transparency is that systemically important financial institutions have to undergo stress tests and disclose the results. There has also been a big push to disclose the compensation of [corporate] insiders, which, at face value, seems desirable. The question is whether these attempts have successfully curbed risk taking. Disclosing stress-test results is desirable, a good first step. The downside is that we’re still unsure of how this disclosure affects the behavior of banks.
Haresh Sapra is professor of accounting at Chicago Booth.
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