August 27, 2008
Disclosure Versus Business Confidentiality
The efforts of the Federal Reserve and the Office of the Comptroller of the Currency to keep abreast of the situation in struggling banks is yet another illustration of problems in our disclosure theory of securities law. Both government agencies have issued "memorandums of understanding" to struggling banks. The Memorandums can force banks to raise capital, cut back on taking risky loans, and suspend dividend payments. The documents are an "early warning" signal. Shareholders of these publicly-held banks understandably want to know about the existence and detail in the Memorandums; the documents are surely "material" under any body's definition. But the Memorandums are "confidential." Rumor and insider leaks roil the bank market on which banks have been issued the documents. Once again investors are reminded that the concept of "materiality" has numerous, ad hoc, holes.
August 27, 2008 | Permalink
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The investors have a right to know the financial plight of any company they are investing in.
With that said, of course, there are many other companes to invest in that will willingly give out this info, so I guess for the time being, it's just best to avoid banks. I guess we will just have to keep close tabs on this situation.
Posted by: Josh Neumann | Aug 27, 2008 11:08:43 AM