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Impact of greater bank disclosure amidst a banking crisis

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  • John S. Jordan
  • Joe Peek
  • Eric S. Rosengren

Abstract

Banking crises have continued to emerge in recent years, contributing to severe economic contractions in Japan, Russia, and Southeast Asia. In response, international organizations have advocated enhanced market discipline, encouraging countries to improve disclosure. One reason so little progress has been made is that neither the proponents nor the opponents of enchanted disclosure policies have persuasive empirical evidence to support their views on potential costs and benefits of such a policy. This paper fills that gap by examining the impact of requiring the release of supervisory information on troubled U.S. banks during a severe banking crisis. We find that improving disclosure at troubled U.S. banks during the banking crisis was not destabilizing and did provide conditions for market discipline to work more effectively. These findings support the public policy proposal of enhanced bank disclosure, even at a time when experiencing a banking crisis.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 99-1.

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Date of creation: 1999
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Handle: RePEc:fip:fedbwp:99-1

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Keywords: Bank supervision ; Public policy ; Transparency;

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References

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  1. Miller, Victoria, 1996. "Speculative currency attacks with endogenously induced commercial bank crises," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 383-403, June.
  2. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  3. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  4. Robert DeYoung & Mark J. Flannery & William W. Lang & Sorin M. Sorescu, 1998. "The informational advantage of specialized monitors: the case of bank examiners," Working Paper Series WP-98-4, Federal Reserve Bank of Chicago.
  5. Frederic S. Mishkin, 1991. "Anatomy of a Financial Crisis," NBER Working Papers 3934, National Bureau of Economic Research, Inc.
  6. Allen N. Berger & Sally M. Davies & Mark J. Flannery, 2000. "Comparing market and supervisory assessments of bank performance: who knows what when?," Proceedings, Federal Reserve Bank of Cleveland, pages 641-670.
  7. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  8. Flannery, Mark J & Houston, Joel F, 1999. "The Value of a Government Monitor for U.S. Banking Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 14-34, February.
  9. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
  10. Kashyap, Anil K. & Stein, Jeremy C., 1995. "The impact of monetary policy on bank balance sheets," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 151-195, June.
  11. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
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Citations

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Cited by:
  1. Solomon Tadesse, 2005. "Banking Fragility and Disclosure: International Evidence," William Davidson Institute Working Papers Series wp748, William Davidson Institute at the University of Michigan.
  2. Hyytinen, A. & Takalo, T., 2000. "Enhancing Bank Transparency: a Re-assessment," University of Helsinki, Department of Economics 492, Department of Economics.
  3. Ari Hyytinen & Tuomas Takalo, 2004. "Preventing Systemic Crises through Bank Transparency," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 33(2), pages 257-273, 07.
  4. R. Alton Gilbert & Mark D. Vaughan, 2000. "Do depositors care about enforcement actions?," Working Papers 2000-020, Federal Reserve Bank of St. Louis.
  5. anonymous, 2000. "Improving public disclosure in banking," Staff Studies 173, Board of Governors of the Federal Reserve System (U.S.).
  6. Fred Furlong & Simon Kwan, 2006. "Safe and sound banking, 20 years later: what was proposed and what has been adopted," Working Paper Series 2006-27, Federal Reserve Bank of San Francisco.
  7. Mark M. Spiegel & Nobuyoshi Yamori, 2004. "Determinants of Voluntary Bank Disclosure: Evidence from Japanese Shinkin Banks," CESifo Working Paper Series 1135, CESifo Group Munich.
  8. John S. Jordan, 1999. "Pricing bank stocks: the contribution of bank examinations," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-53.
  9. Frederick T. Furlong & Simon Kwan, 2006. "Safe & sound banking, 20 years later: what was proposed and what has been adopted," Proceedings, Federal Reserve Bank of San Francisco.
  10. Frederick T. Furlong & Robard Williams, 2006. "Financial market signals and banking supervision: are current practices consistent with research findings?," Economic Review, Federal Reserve Bank of San Francisco, pages 17-29.

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