In 1913 when Louis Brandeis ó later a Justice of the US Supreme Court ó first wrote of the disinfecting power of sunlight, he was discussing the impact of public disclosure on the growing power of financial combinations in the securities market.
“Publicity is justly commended as a remedy for social and industrial diseases,” he wrote, recommending the sunlight of full disclosure as the remedy.
It took 20 years and a national economic crisis for Brandeis’ prescription for effective regulation of financial institutions to become law in the first round of New Deal regulatory reforms. In another 60 years, the pendulum swung the other way. In the 1990s, Congress repealed those reforms in a frenzy of deregulation that many believe to be responsible for the current economic mess.
In 1994, without hearing or debate, Congress began a series of deregulatory actions that led to the repeal in 1999 of the Glass Steagall Act, last of the New Deal laws that protected us from irresponsible bank investment practices.
One 1994 step seemed relatively small. It removed a requirement that banks publish their quarterly financial results in the local newspaper of record.
But then we were blinded. We no longer had ready access to the basic information about how banks are doing. Are they making money? Are they investing wisely? Will they be there next year? After 1994, an inquiring mind would have a hard time finding answers to those questions. Until the public learned that some banks had grown “too large to fail” and that Uncle Sam would be required to borrow billions of dollars to save them, most of us were clueless about the practices in banking. The primary function of bank financial reporting ó to keep the general public informed about the financial condition of the bank ó was defeated by deregulation.
Now there is a proposal in Congress that would bring back the sunlight. The Financial Transparency Restoration Act, HR 2727, would once again require financial institutions to publish information about their performance.
The bill was introduced by Rep. Walter Jones, a Republican from North Carolina. He believes, and we believe it is important to restore basic accountability in financial services. This bill will go a long way towards doing that. If anything at all has changed since 1913, it is that Brandeis could only tell us that “Sunshine is said to be the best of disinfectants.” After years of experience, we can say with some certainty that, in fact, it is.
ó National Newspaper Association