Abstract

Financial Stability, Transparency, and Accountability: Statement for the Constitutional Court of the Federal Republic of Germany

The paper provides a written version of a statement in a hearing of the German Constitutional Court on May 9, 2017, in a case concerning the extent of the Federal Government"s obligation to provide information to members of the Bundestag in public. The Court had asked for an assessment whether the viability of financial supervision and the sustained success of the government"s support for financial institutions in the crisis would have been endangered if the government had publicly answered questions from the parliamentary party of The Greens" in November and December 2010.

The statement asserts that many of the arguments given by the Federal Government to support its denial of the Greens" request are flawed. The Federal Government"s denial contributed to preventing a public discussion about the causes of and responsibility for the severity of the impact of the financial crisis on German financial institutions. Given the costs of the crisis for taxpayers, which were high by comparison to other countries, such a discussion would have been called for, also with a view to ensuring that reform measures would actually be suitable for the purpose that they were claimed to achieve.

The statement takes the view that restrictions on a financial institution"s right to confidentiality are legitimate, and do not endanger the viability of supervision, if the creation of transparency is linked to the institution"s having been kept out of default with taxpayer money. The statement also argues that, for institutions that had needed and received government support, and were still doing so, the risk of renewed instability from publicizing further information about the past was small. Finally, the statement takes issue with the wholesale view that transparency as such posed dangers to financial stability because any information might induce a panic, even if the substance of the information was harmless. Whereas models of "sunspots„, i. e. irrelevant information, causing runs and panics are popular in theory, in practice runs and panics are triggered by new information that makes a substantial difference to investors" assessments of economic prospects.