Bankers learn to let it all hang out
Jean-Claude Trichet finally gets it. Brian Lenihan finally gets it. Angela Merkel finally gets it. Central bankers all over Europe finally get it. They've all learned that information, even of the unpleasant sort, sets you free.
The US authorities, led by Tim Geithner, stress tested the US banking system way back in May 2009, when the financial system globally was much more fragile, confidence lower and capital levels more depleted. Bank shares rallied by 36pc in the period after the stress-test results were completed.
For reasons of stubbornness and fear, the European authorities, including Ireland's own Department of Finance, refused throughout this period to publish stress tests or to even give an indication of how their banks would fare under adverse scenarios. In Ireland, the explanation was that nobody else was airing dirty linen, so why would Ireland?
This was partly understandable, but the downside consequence of not telling investors how bad things could get, is that they start to think just how bad things will get. Now, previously dangerous ideas -- like a Greek, Spanish or even Irish default -- are being discussed openly, but in abstract.
Investors know these events are unlikely to happen, but are demanding that banks across Europe demonstrate their ability to deal with so-called "black swan" events. That is how it should be. The previous approach of only dreaming of pleasant things did little for banks, governments or shareholders.