Public Disclosure and Bank Failures
AbstractThis paper analyses the impact of public disclosure of banks’ risk exposure on banks’ risk taking incentives and its implications in terms of soundness of the banking system. We find that, when banks have a complete control over the volatility of their loan portfolio, public disclosure reduces the probability of banking crises. When asset risk is driven largely by exogenous factors beyond the control of bank managers, however, information disclosure may increase banking sector fragility, as the potential gains from a safer choice of assets is offset by the negative feed-back, arising from a positive correlation between asset risk and the deposit rate demanded by informed depositors.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1886.
Date of creation: May 1998
Date of revision:
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Other versions of this item:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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