Transparency
For a banking authority, the combination of a precise mandate with a high degree of transparency in its implementation is crucial because it reduces simultaneously the opportunities for (a) the pursuit of personal interests on the part of supervisors, (b) the exercise of undue influence over the decision-making process by market participants (so-called “regulatory capture”), and (c) political interference. The legal framework should require agencies dealing with insolvent banks to operate with the maximum degree of transparency compatible with the need to preserve confidentiality.40
The transparency of the supervisory function is often difficult to achieve in practice because decisions are typically highly invisible for cogent reasons of confidentiality. This lack of transparency makes supervisory decisions an easy target for interference by politicians and market participants requesting forbearance. The scope for interference can be limited if the decision making relating to supervisory enforcement (including revocation of a license), and the commencement of insolvency proceedings is based on precise rules and on well-specified criteria. In principle, considerations of confidentiality are less likely to justify nontransparency of the official decision makers’ evaluations and actions after the commencement of insolvency proceedings.41 Even where reasons of confidentiality preclude open decision making or the disclosure by an agency of detailed information to the public at large, the provision of more comprehensive information to the politically responsible executive branch of government will still be appropriate.
