Finally – sorry – the last pillar of the basel II agreement.

The third pillar – it’s pretty simply – it requires banks to be more translucent with their reporting, allowing markets to get a better grasp of what’s going on inside the bank.

Let’s take a step back on the topic – why do I care?  Not just because banking is a rather important topic of conversation lately.  This is an international document that lacks the ability to be enforced.  Different cultures, different government regulations that affect banking more directly rather than an elusive, global document.  It’s worth talking about, getting familiar with, just as international accounting standards are being adapted to global companies. 

But overall – this is pertinent to current times.  I’d like a clearer definition of what a bank considers its assets before I invest.  I’d like to know how Lehman Brothers developed its CDOs and derivative products. Or how banks managed their risks, what they were exposed to, what to expect for risk in the future and how it’s pieced together.  

Smart people can develop complicated financial models to outsmart the market, to dissipate risk and create a win-win situation.  But let’s have regulations that piece together all of these, to understand CDOs and what-if situations of unwinding them.  Of conceiving irresponsible rating agencies inflating MBSs or plain company bonds.  Well, I guess I’m getting a little ahead of myself.

But a clearer presentation to the market of internal activities would allow the possibility of smart people to conceive these possibilities of failing banks, poor loan practices and the overall ripple effect on others.

I don’t think it’s too much to ask for a free market with free information.