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Improving public disclosure in banking

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  • anonymous
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    Abstract

    The use of market discipline as a complement to bank supervision and regulation has gained greater acceptance in the United States and abroad. It is also widely recognized that effective market discipline depends on market participants' having information about the risks and financial condition of banking organizations. Therefore, attention is being focused increasingly on ways to improve transparency in banking. Staff of the Federal Reserve System undertook a staff study, Improving Public Disclosure in Banking, to consider initiatives that promote better disclosure in banking. The purpose of the study is to present a set of initiatives that would reinforce the current process shaping disclosure while avoiding additional regulatory requirements. The study lays the foundation for the initiatives by considering how market discipline could supplement supervision in principle and by reviewing the empirical evidence on market oversight and discipline in banking. Key sections of the study discuss the factors shaping public disclosure in banking and identify the strengths and weaknesses of the process. Regarding the potential for market discipline, the study suggests that greater reliance on private-sector oversight in banking can be consistent with the supervisory goals of limiting moral hazard and systemic risk and that the oversight can be effective.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Staff Studies with number 173.

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    Date of creation: 2000
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    Handle: RePEc:fip:fedgss:173

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    Keywords: Banks and banking ; Bank supervision;

    This paper has been announced in the following NEP Reports:

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    1. 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.
    2. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
    3. Simon H. Kwan & Mark J. Flannery & M. Nimalendran, 1999. "Market evidence on the opaqueness of banking firms' assets," Working Papers in Applied Economic Theory 99-11, Federal Reserve Bank of San Francisco.
    4. Frederick T. Furlong & Michael C. Keeley, 1987. "Subordinated debt as bank capital," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct23.
    5. Eduardo Levy Yeyati & Tito Cordella, 1997. "Public Disclosure and Bank Failures," IMF Working Papers 97/96, International Monetary Fund.
    6. Ellis, David M. & Flannery, Mark J., 1992. "Does the debt market assess large banks, risk? : Time series evidence from money center CDs," Journal of Monetary Economics, Elsevier, vol. 30(3), pages 481-502, December.
    7. John S. Jordan & Joe Peek & Eric S. Rosengren, 1999. "Impact of greater bank disclosure amidst a banking crisis," Working Papers 99-1, Federal Reserve Bank of Boston.
    8. Flannery, Mark J, 1998. "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 273-305, August.
    9. Raghuram G. Rajan, . "The Past and Future of Commercial Banking Viewed through an Incomplete Contract Lens," CRSP working papers 337, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    10. Allen Berger & Sally Davies, 1998. "The Information Content of Bank Examinations," Journal of Financial Services Research, Springer, vol. 14(2), pages 117-144, October.
    11. William F. Treacy & Mark S. Carey, 1998. "Credit risk rating at large U.S. banks," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 897-921.
    12. anonymous, 1999. "Using subordinated debt as an instrument of market discipline," Staff Studies 172, Board of Governors of the Federal Reserve System (U.S.).
    13. C. H. Furfine, 1999. "The pricing of bank lending and borrowing: evidence from the federal funds market," BIS Working Papers 62, Bank for International Settlements.
    14. Donald P. Morgan, 1998. "Judging the risk of banks: what makes banks opaque?," Research Paper 9805, Federal Reserve Bank of New York.
    15. Allen N. Berger & Sally M. Davies, 1994. "The information content of bank examinations," Proceedings 55, Federal Reserve Bank of Chicago.
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