Recommendations to enhance risk disclosure by banks is needed to help restore investors’ confidence, Fitch Ratings says in a new report.

Responding to a new report from the so-called Enhanced Disclosure Task Force (EDTF) for the Financial Stability Board (FSB), Fitch Ratings says that its recommendations would make it much easier for investors to compare the risk profiles of major banks, and could increase the confidence of market participants in bank data.

Currently, it says, the public data that banks provide on many areas of risk varies significantly between firms, which makes meaningful comparisons difficult. Disclosure around funding and liquidity is particularly poor, it says.

“For example, the lack of transparency over which of a bank’s assets have been pledged as collateral, or encumbered, is a key issue both for us and for investors concerned about the impact on unsecured debt,” it says. Fitch says that banks do not disclose these details on a consistent basis, and estimating them from other sources can be difficult.

The recommendations in the report address this by proposing a simple table providing a breakdown of encumbered and unencumbered assets by asset type, and also by whether unencumbered assets are likely to be readily available as collateral, the rating agency reports.

Fitch says that another area where improved disclosure is especially important to aid investor confidence is capital adequacy — particularly, the risk-weightings that banks assign to their assets. “Differences between the risk-weightings that different banks assign to apparently similar assets have created scepticism among some market participants about the risk models that banks use. Better disclosure of the size of a bank’s exposures, and its estimates of their probability of default and loss-given default, should help banks combat this scepticism,” it suggests.

Deutsche Bank also welcomed the report, and says that it endorses the overall objective of continuing to improve banks’ risk disclosure. It says it will carefully consider the EDTF’s principles and recommendations, starting with enhancements to its upcoming annual report, which will be published on March 21, 2013.