Accounting standards provide the foundation for credible financial statements and other disclosures that are key means for communicating a company's operating results and its overall health, as well as for making more transparent various operating activities. Disclosure of reliable information facilitates market discipline, strengthens confidence, improves decision making and reduces the chance that rumors and misleading information could cause instability in national and global markets. Also, by facilitating market discipline, public disclosure helps reinforce supervisory efforts to encourage banks and other companies to maintain sound risk management practices and internal controls. For these reasons, the Federal Reserve and the Basle Committee on Banking Supervision have strongly supported initiatives to improve the quality of national and international accounting standards and disclosure practices. Finally, bank supervision and regulation must be upgraded.
Banks are an important mechanism for transmitting funds both domestically and internationally.
However, in societies in which banks are afforded certain benefits and safety nets because banking problems have the potential to disrupt financial markets, banks can perform their intermediary role best if they are properly supervised. This supervision, in turn, should start with oversight by depositors and participants in private debt and equity markets and be reinforced by appropriate supervisory practices and safeguards. Assessing the soundness of banking institutions is difficult, simply because of the nature of the banking business. Extending credit inherently involves subjective judgments, and standards of adequate risk measurement and disclosure must continually evolve along with the nature and complexity of banking products and the ability of institutions to assimilate information. Both authorities and market participants must request and receive sufficiently accurate, timely, and relevant information on which to base their decisions.