Transparency in the Financial System: Rollover Risk and Crises
AbstractThe paper presents a theory of optimal transparency in the financial system when financial institutions have short-term liabilities and are exposed to rollover risk. Our analysis indicates that transparency enhances the stability of the financial system during crises but may have a destabilizing effect during normal economic times. Thus, the optimal level of transparency is contingent on the state of the economy, with the regulator increasing disclosure in times of crises. Under this policy, however, an increase in disclosure signals a deterioration of the economy’s fundamentals, so the regulator has incentives to withhold information ex-post. In that case, the regulator may have to commit ex-ante to a degree of transparency which trades off the frequency and magnitude of financial crises. The analysis also considers the possibility that financial institutions, in an attempt to deal with rollover risk, either diversify their risks or increase the liquidity of their balance sheets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1206.
Date of creation: 2012
Date of revision:
Banking regulation; bank run; disclosure; financial stability; global games;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G01 - Financial Economics - - General - - - Financial Crises
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.:
- Archishman Chakraborty & Rick Harbaugh, 2004.
"Comparative Cheap Talk,"
2004-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Guillaume Plantin, 2009. "Learning by Holding and Liquidity," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 395-412.
- Acharya, Viral V. & Gale, Douglas M & Yorulmazer, Tanju, 2009.
"Rollover Risk and Market Freezes,"
CEPR Discussion Papers
7122, C.E.P.R. Discussion Papers.
- Chen, Qi & Goldstein, Itay & Jiang, Wei, 2010. "Payoff complementarities and financial fragility: Evidence from mutual fund outflows," Journal of Financial Economics, Elsevier, vol. 97(2), pages 239-262, August.
- Viral V. Acharya & Tanju Yorulmazer, 2008.
"Cash-in-the-Market Pricing and Optimal Resolution of Bank Failures,"
Review of Financial Studies,
Society for Financial Studies, vol. 21(6), pages 2705-2742, November.
- Viral Acharya & Tanju Yorulmazer, 2007. "Cash-in-the-market pricing and optimal resolution of bank failures," Bank of England working papers 328, Bank of England.
- repec:bla:restud:v:76:y:2009:i:1:p:395-412 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanne Perron).
If references are entirely missing, you can add them using this form.