You know, transparency is overrated.
The decision to release the results of the government’s stress test of the nation’s biggest banks could actually damage everyone involved.
Releasing stress-test results is “very disconcerting” to bank regulators normally accustomed to keeping bank financials confidential, former Dallas Fed president Bob McTeer writes on his blog.
“Any implicit ranking of the ‘Big 19′ will cause problems for the equal banks that are not quite as equal as others,” he says. “My guess is that the regulators are frantically meeting trying to get themselves out of the foolish promise with the least amount of damage.”
And while the Obama administration has preached openness and transparency, especially regarding the economy, sometimes things are better left unsaid, McTeer notes. “Maybe this will put a damper on the notion that transparency is the answer to everything — that more information is always better than less.”
Vernon Hill, founder and former CEO of Commerce Bancorp, also says nothing good can possibly come out of publicly releasing the results.
“If you publish results that show that most banks passed the test with flying colors (except for, say, one or two that were already suspect), investors and depositors will assume the system is rigged, and discount the results,” he says.
But if results show most institutions are stressed, “you’ll risk inducing runs on those institutions, which in turn will weaken the system further,” Hill adds. “You’ve designed a process out of which can come no good outcomes.”
