Taking Input From Depositors

A long time ago, I had the idea that a new form should be added to the income tax return. Rather than being a burden on the individual, it would be an opportunity to provide input on how they wanted their money spent.

It would basically expose the top categories of the federal budget and allow the taxpayer to allocate, by percent, how they want their money spent. At least in the beginning, it might be non-binding, just an informational tool. It would help our government know what we the people really wanted our money spent on.

Even if some people put down 100% of their taxes to spent towards the Defense Department, you'd have another person who might allocate 100% for HHS, or for paying down the national debt. Other people might be more nuanced and thoughtful in their choices.

The IRS obviously has the technology to handle this sort of thing. It is just a question of the government actually wanting detailed feedback directly from the public.

If it looked like it was working (not leading to huge skews in the budget from year to year, or only making up a fraction of the overall budget in size) then it actually could be made binding. Then people who made allocations would actually feel much happier about their tax payments.

I recently had an update of this idea while driving to work. Something similar could be done by banks for depositors. Listen to depositors about how they want their money put to use. Do they want it left in the vault? Do they want it lent to persons or businesses, locally or globally? Do they it used to buy or create derivative instruments?

Just listen, for a start. Any bank could do this without a regulator forcing them. It would make that bank seem to be a much more responsive and concerned institution.

Whither Stress Testing?

OK, the stress of stress testing has come and gone, now what? If that is the first and last time we do this, it was a meaningless PR exercise.

Stress testing needs to be put on a solid, repeatable, and repeated basis.

First - Publish the stressors. What was the formula used to compute capital adequacy? Can I have that in XBRL, please?

Second - This is fun, let's do it every quarter! How long have people been complaining about financial statements being retrospective instruments? We need to embrace forecasting fully. We need to build up a body of time series of these things. Published in XBRL with no tweaking by the Fed. Transparency rocks!

Third - What's the error bar? Let's say I got my wish, and every quarter every bank in the US reported a matrix of capital adequacy forecasts across some increments of inflation and unemployment. Is that enough? No. We also want the probability assigned by the bank to each cell, and the uncertainty band around their reported figure.

Fourth - Why stop at banks? In this era of large companies sucking at the government teat to survive, we should be able to demand similar forecasts of other recipients. The capital market needs to eventually take up the responsibility of holding public companies up to a requirement of disclosure, not the regulators. In the meantime, regulators should prime the pump, and establish the set of data items to be provided. Standard setters, make some standards for prospective disclosures, please.