Bank of England says transparency is a "two-edged sword" for banks

London -- A new paper published in the Bank of England’s Financial Stability Review in mid-December notes that although calls for more transparency in financial systems are now "commonplace," and that disclosures are "a powerful tool for limiting the moral hazard of investors and governments alike, it can be a two-edged sword.

The new paper, authored by Prasanna Gai of the Australian National University and Hyun Song Shin of the London School of Economics, says "the efficacy of communication depends on the institutional framework, the decision horizon and the expectations of key players, and the constraints that these can place on policy-maker flexibility." Essentially, transparency can backfire if it’s not handled well