If Greece were to descend into disorderly default, how big would the financial hit be? That question has been stirring up intense debate in the markets; and, of course, among regulators too. With negotiations about Greek debt having dominated the headlines, it has been important to understand the “what if” scenarios.
But amid the number-crunching, there is a bigger question too: just how much information is really available about the likely impact of any Greek shock? After all, when the financial system went into shock in 2008, following the Lehman Brothers collapse, it became clear that modern finance was plagued by a data fog; although investors could find timely information about equities, say, there was very limited transparency about other areas, such as the repo market or credit derivatives (partly because banks had a commercial interest in maintaining that fog).
Since then, global regulators have pledged reforms. And in some senses, considerable progress has been made. Today banks and other financial institutions are filing far more detailed reports on those repo and credit derivatives trades, and regulators are exchanging that information between themselves. Meanwhile, in Washington a new body – the Office of Financial Research (OFR) – has been established to monitor those data flows and in July US regulators will take another important step forward when they start receiving detailed, timely trading data from hedge funds, for the first time. But there is a catch: although these reports are now flooding in, what is still critically unclear is whether the regulators – or anybody else – has the resources and incentives to use that data properly. The bitter irony is that this information tsunami is hitting just as institutions such as the Securities and Exchange Commission are seeing their resources squeezed; getting the all-important brain power – or the computers – to crunch those numbers is getting harder by the day.