Investors need more genuine transparency, not just more disclosure.

Recently, the importance of corporate candour has become particularly critical. With the effects of the subprime crisis rebounding through the world’s markets in unpredictable ways, financial institutions are finding themselves vulnerable to both truth and rumour regarding their exposure.

Most of the big Canadian banks have already taken a hit of some sort. And, in the case of CIBC, a couple of executives have paid the price. TD Bank Financial Group is the one big bank that has, so far, avoided any impact — which, it recently discovered, makes it the perfect target for rumourmongers.

Markets are now assuming the worst. A number of the big financial services firms that took early charges have had to submit to much bigger writedowns just a few weeks after their initial confessions. And, analysts say, they are still lacking insight into some of the banks’ holdings. So, even a firm with a pristine balance sheet is susceptible to the market’s current mood of easy skepticism.

Of course, a lack of transparency is at the heart of the whole subprime mess — from the mortgage brokers that encouraged borrowers to conceal their lack of income or assets, to the securitization whizzes that sliced and diced the suspect loans, repackaged them and sold them, concealing their ultimate origin and the attendant credit risk.

With a great deal more clarity, probably much of this could have been avoided. Regulators hope that, having learned that lesson, the market will demand sufficient transparency without regulatory intervention.

But there are other areas in which transparency has to be more contrived. Retail investors, for example, don’t have the market power or the expertise to demand adequate disclosure in the products they are sold. That responsibility falls on regulators’ heads.

In fulfilling that duty, regulators should keep in mind the recent remarks of Bank of Canada deputy governor Sheryl Kennedy, who stressed the importance of producing more useful disclosure.

That makes a great deal of sense, not just for monetary policymakers, but also regulators who want to ensure that issuers are upfront with investors. Disclosure of everything could stand improvement. That means making it more meaningful, not just more voluminous.