This short paper analyzes banks' communication policies in crisis times and the role of imperfect information in enhancing banks' distress. If banks differ in their exposure to risky assets, fragile banks may claim to be solid only in order to manipulate investors' expectations. Then solid banks must pay a larger interest rate than in a perfect information set-up. A stronger sanction for false information would improve the situation of the low-risk banks but deteriorate the situation of the high-risk banks. The total effect on defaulting credit institutions is ambiguous. It is shown that, in some cases, the optimal sanction is lower than the sanction that rules out any manipulatory behaviour.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number
DR 08018.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)