Too much information from banks could be a good thing

The market wants facts. Facts about the pan-European stress tests on banks. Facts about the assumptions behind the tests. Facts about who has passed and who has failed. Facts about how much new capital the laggard banks will have to raise. The Committee of European Banking Supervisors – the once-anonymous but now high-profile body conducting the tests – has clearly been rattled by investors' thirst for information. In the next day or two, it will lift the lid on the methodology behind its work. It is a big moment for the market. It is an attempt by CEBS to persuade investors that the tests are not an exercise in papering over the cracks of the European banking system and pretending all is well. The good news is that CEBS has not ignored investors' number-one worry – the risk of sovereign debt default within the eurozone. Excellent. So what level of defaults are being stressed? That's where the plot becomes murkier. Expect to hear assurances along these lines: "We have assumed greater stresses than those seen since early May." But that's just common sense. Early May was when the Greek crisis was at its height, so CEBS had to go beyond that level. It is vital that it gives a fullish description of how much further it has gone. Investors probably cannot expect to be told the assumed level of eventual default of Greek bonds. But nor should they be asked to join too many dots for themselves – wishy-washy definitions of stress won't cut it. The best policy for CEBS would be to err on the side of giving too much information. Credibility and transparency are the most important qualities here. If that implies blood on the carpet and big capital-raisings, that's just how it has to be.