In this Economic Commentary, we describe the evolution of transparency in the global banking system, why transparency is important, and the effects of insufficient transparency on financial stability. We then discuss climate risks and the work being done internationally to promote transparency of climate-related information.

Transparency is important because the parties in the financial system need to trust each other in order for the system to fulfil its basic functions - mediating payments, converting savings into investments and managing risks. For example, a bank that loses the confidence of depositors could suffer a run on withdrawals that could quickly lead to the bank's default. Trust requires access to true and fair information, so that all stakeholders can form an accurate view of the risks involved in engaging with a counterparty. There must then be sufficient transparency. But transparency is not just about the supply of information. Nor does more information automatically mean greater transparency. It is also important that the information provided is relevant and understandable to the counterparty.