This post will briefly discuss the ethics involved with regards to financial institutions receiving emergency support from state-based actors.  Specifically, Fitch has openly condemned the rules applicable to financial institutions that revolve around disclosure of receiving emergency assistance.

The regulatory body being targeted for this condemnation is the Bank of England along with the institutions that fall under its oversight. This was in response to the quiet publication of a supervisory statement by the Prudential Regulatory Authority (PRA) which specified that disclosures related to such assistance can be waived. Such assistance could disadvantage investors and, ethically speaking, creates a clear information asymmetry that could prove to be detrimental to otherwise well-informed and financially literate investors.

In fact, it was justified by regulators that emergency liquidity assistance would be less effective if investors were to be aware of it, hence the removal of disclosure requirements. This is certainly a valid point. Ambivalent policies are not unheard of; in this case, a balance needs to be struck between the conflict of transparency to inform investors and the the need to maintain investor confidence.

Nonetheless, the lack of timely disclosure can clearly misrepresent the current liquidity position of a financial institution, which can ultimately impact the soundness of said institution if investors were to discover the occurrence of assistance.