Mitchell Berlin examines disclosure requirements for banks. Can market participants play a significant role in ensuring that banks limit their risk-taking? Although regulators find this idea increasingly attractive, economists generally have two schools of thought: Such monitoring could substitute for regulatory discipline to a significant extent or the roles of regulators and market participants could be complementary. But to evaluate banks' risk-taking, investors would want good information about a bank's activities and balance sheet. In light of this, would more disclosure by banks be a good thing? While there are no definitive answers to this question, in "True Confessions: Should Banks Be Required to Disclose More?" Berlin reviews some recent economic literature that can offer useful insights to policymakers.
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Article provided by Federal Reserve Bank of Philadelphia in its journal Business Review.
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