Secrets of the Bailout, Now Revealed
But keeping this information from shareholders is no way to engender their trust. And a lack of investor confidence often translates to depressed valuations among companies’ shares. If investors doubt that a company is coming clean about its financial standing — the current worry is how exposed our banks are to European debt woes — its stock price will suffer. This is very likely one of the reasons that big bank stocks trade at such low price-to-earnings multiples today.
It will be interesting to see whether the S.E.C. does anything to enforce its rules that companies disclose federal assistance in financial filings, either in the recent past or in the future. You could certainly argue that requiring such disclosures is even more important nowadays, given that so many banks are considered too big to fail and that the taxpayer will undoubtedly be asked once again to rescue them from their mistakes.
“These banks and the Fed have never believed in transparency,” Mr. Turner said. “I actually think their thought process is sorely flawed. If the banks knew this stuff was going to be made public they’d behave differently. Instead of runs on the bank you’d have bankers doing things intelligently to avoid getting into trouble.”