Transparency and financial Stability - article of the Financial Stability Review December 2003

THE NOTION OF TRANSPARENCY is broad-ranging. It encompasses notions of accountability and political legitimacy of decision makers, as well as the legal and accounting infrastructure in which economic decisions are made. But from the operational perspective of a central bank, transparency can be regarded more narrowly in terms of the disclosure of information to a wider audience. Intuitively, the release of a greater volume of more precise information in a more timely manner seems beneficial because it reduces asymmetric information and uncertainty in financial markets. Information about the financial stability framework and public evaluation of national balance sheets against yardsticks on international codes and standards offers investors an opportunity to assess risk better and arrive at more informed decisions. Moreover, greater clarity about financial stability policy potentially simplifies the task of monetary and fiscal policy by establishing clear lines of responsibility and objectives. In an environment of greater trust, communication by the central bank allows for greater flexibility to act. 2