Why Banks Should Keep Secrets
AbstractWe show that it is sometimes efficient for a bank to commit to a policy that keeps information about its risky assets private. Our model, based upon Diamond-Dybvig , has the feature that banks acquire information about their risky assets before depositors acquire it. Banks have the option of using contracts where the middle-period return on deposits is contingent on this information, but by doing so they must also reveal the information. We derive the conditions on depositors' preferences and bankers' technology for which banks would prefer to keep information secret even though they must then use non-contingent deposit contracts.
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0014.
Length: 20 pages
Date of creation: 2000
Date of revision:
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Web page: http://business-school.exeter.ac.uk/about/departments/economics/
More information through EDIRC
CONTRACTS ; INFORMATION ; BANKS;
Other versions of this item:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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