This report discusses the role of information in effective market discipline and effective banking supervision. It provides general guidance to banking supervisors and regulators as they formulate and improve regulatory frameworks for public disclosure and supervisory reporting, and to the banking industry on core disclosures that should be provided to the public.

The issuance of this paper is based on the recognition that markets contain disciplinary mechanisms that can reinforce the efforts of supervisors by rewarding banks that manage risk effectively and penalising those whose risk management is inept or imprudent. Market discipline, however, can only work if market participants have access to timely and reliable information which enables them to assess a bank's activities and the risks inherent in those activities. Improved public disclosure strengthens market participants' ability to encourage safe and sound banking practices.

The complementary interaction of prudential supervision and market discipline is critical to promoting long-term stability of both individual institutions and banking systems. The effectiveness of the interaction depends greatly on meaningful public disclosure. This document recommends that supervisors focus their efforts on encouraging high-quality public disclosure at reasonable cost. One area in which supervisors are well suited to take on a proactive role, acting alone or jointly with standard-setters, is in enhancing comparability by promoting the use of supervisory definitions and reporting classifications in public disclosure. Supervisors are also encouraged to promote mechanisms designed to ensure compliance with disclosure standards and the strengthening of standards that ensure reliability of information.

The paper recommends that banks, in their financial reports and other disclosures to the public, provide timely information which facilitates market participants' assessment of them. It identifies the following six broad categories of information, each of which should be addressed in clear terms and appropriate detail to help achieve a satisfactory level of bank transparency:

• financial performance;
• financial position (including capital, solvency and liquidity);
• risk management strategies and practices;
• risk exposures (including credit risk, market risk, liquidity risk, and operational, legal and other risks);
• accounting policies; and
• basic business, management and corporate governance information.

The paper also discusses the types of useful information for each category. Finally, the paper encourages supervisors to have access to this and other information of supervisory interest.