Bank Transparency: Cost of Capital and Return on Credit Issues

Recent credit market problems have resulted in actions by Congress, the Bush and Obama Administrations and regulatory agencies to preserve the integrity of the banking system. Although the issue of bank transparency has not been considered as integral to the development of a comprehensive policy for the American banking system, there are significant gaps in the data required to analyze conditions in banking and to develop possible remedies. This paper analyses certain elements integral to U.S. and international banking: 1.) the concept of bank transparency in an environment where the ownership and control of leading financial institutions is no longer subject to the rights and limitations inherent in traditional private ownership; 2.) the requirements of the Basel protocols and of the Sarbanes-Oxley Act; 3.) the cost of capital for the banking industry, which has been a private matter and subject to educated conjecture but not widespread understanding; and 4.) the returns earned by the most significant credit product used by business, lines of credit, and the problems in receiving fair returns for the capital invested