No perfect solution to reconcile transparent/efficient markets and financial
stability
A survey of CFA
UK members on
non-disclosure of liquidity support for
solvent financial institutions has found the
membership’s opinion is almost evenly split. A small majority, 52%, believe that
liquidity support should be disclosed, ensuring transparent capital markets.
However, 48% feel that short-term non-disclosure may be appropriate in order to
maintain financial stability. 3
40 members
responded to the survey.
CFA
UK’s survey also asked members
whether the delay in disclosure of liquidity support would serve the best
interests of investors, financial institutions seeking liquidity support,
depositors and overall capital market integrity. Not surprisingly, a vast
majority of respondents, 83%, think the financial institution needing liquidity
support will benefit most from non-disclosure measures. Views on the impact to
depositors were divided whilst members believe that investors and overall market
integrity would be adversely affected, with 57% and 53% of respondents stating
that these groups have little to gain from non-disclosure rules.
In CFA
UK’s
response to the FSA consultation paper on the issue, the society opines that
markets would work out the true position within two weeks. Therefore, should the
FSA decide
to p
ermit non-disclosur
e, we recommend that two weeks should be the
maximum permissible time for non-disclosure of liquidity support.
The society also suggests
that the FSA/Bank of
England
should also have the authority to refuse to
permit non-disclosure when appropriate. This would ensure that a bank’s own
commercial interests do not take precedence over the interests of other parties
or participants in the financial markets. Lastly, our members are also of the
view that undisclosed support should only be provided in extreme circumstance
and that institutions should be penalised for receiving such
support.
View CFA UK response to
the FSA's consultation paper
View the survey
results
View
members' comments from the survey
