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Should bank supervisors disclose information about their banks?

Author

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  • Edward Simpson Prescott

Abstract

Bank supervisors spend a great deal of resources collecting information on banks, information that would be useful to investors and other market participants. Given that duplicating these efforts is expensive, why not require bank supervisors to disclose this information? In this article, the author argues that this type of disclosure makes it more expensive for supervisors to collect the information in the first place. Furthermore, existing regulatory rules forbid banks from releasing the results of their supervisory exam. The author shows that there are good reasons for these rules because allowing banks to voluntarily disclose their examination reports is effectively the same as requiring supervisors to disclose this information.

Suggested Citation

  • Edward Simpson Prescott, 2008. "Should bank supervisors disclose information about their banks?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 94(Win), pages 1-16.
    • Handle: RePEc:fip:fedreq:y:2008:i:win:p:1-16:n:v.94no.1
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    References listed on IDEAS

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    1. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    2. Allen Berger & Sally Davies, 1998. "The Information Content of Bank Examinations," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(2), pages 117-144, October.
    3. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
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    5. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    6. Kenneth Spong, 2000. "Banking regulation : its purposes, implementation, and effects," Monograph, Federal Reserve Bank of Kansas City, number 2000bria.
    7. 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.
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    Citations

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    Cited by:

    1. Goncharenko, Roman & Hledik, Juraj & Pinto, Roberto, 2018. "The dark side of stress tests: Negative effects of information disclosure," Journal of Financial Stability, Elsevier, vol. 37(C), pages 49-59.
    2. Bank for International Settlements, 2015. "The interplay of accounting and regulation and its impact on bank behaviour: Literature review," BCBS Working Papers 28, Bank for International Settlements.
    3. Marco Molteni & Dario Pellegrino, 2021. "Lessons from the Early Establishment of Banking Supervision in Italy (1926-1936)," Quaderni di storia economica (Economic History Working Papers) 48, Bank of Italy, Economic Research and International Relations Area.
    4. Joel Shapiro & Jing Zeng, 2024. "Stress Testing and Bank Lending," The Review of Financial Studies, Society for Financial Studies, vol. 37(4), pages 1265-1314.
    5. SingRu Hoe & Srinivas Nippani & John David Diltz, 2017. "Should CAMELS ratings be publicly disclosed?," Economics Bulletin, AccessEcon, vol. 37(3), pages 1567-1572.
    6. Itay Goldstein & Yaron Leitner, 2013. "Stress tests and information disclosure," Working Papers 13-26, Federal Reserve Bank of Philadelphia.
    7. Niepmann, Friederike & Stebunovs, Viktors, 2024. "Modeling your stress away," Journal of Banking & Finance, Elsevier, vol. 158(C).
    8. Sehwa Kim & Seil Kim, 2024. "Fragmented Securities Regulation, Information-Processing Costs, and Insider Trading," Management Science, INFORMS, vol. 70(7), pages 4407-4428, July.
    9. Carlos Corona & Lin Nan & Gaoqing Zhang, 2019. "The Coordination Role of Stress Tests in Bank Risk‐Taking," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 57(5), pages 1161-1200, December.
    10. Joel Shapiro & David Skeie, 2015. "Information Management in Banking Crises," The Review of Financial Studies, Society for Financial Studies, vol. 28(8), pages 2322-2363.
    11. König-Kersting, Christian & Trautmann, Stefan T. & Vlahu, Razvan, 2022. "Bank instability: Interbank linkages and the role of disclosure," Journal of Banking & Finance, Elsevier, vol. 134(C).
    12. Goldstein, Itay & Leitner, Yaron, 2018. "Stress tests and information disclosure," Journal of Economic Theory, Elsevier, vol. 177(C), pages 34-69.
    13. Alvarez, Fernando & Barlevy, Gadi, 2021. "Mandatory disclosure and financial contagion," Journal of Economic Theory, Elsevier, vol. 194(C).
    14. Mitchell Berlin, 2015. "Disclosure of stress test results," Working Papers 15-31, Federal Reserve Bank of Philadelphia.
    15. Etienne Farvaque & Catherine Refait-Alexandre & Dhafer Saïdane, 2011. "Corporate disclosure: A review of its (direct and indirect) benefits and costs," International Economics, CEPII research center, issue 128, pages 5-31.
    16. Itay Goldstein & Yaron Leitner, 2015. "Stress tests and information disclosure," Working Papers 15-10, Federal Reserve Bank of Philadelphia.
    17. Chakravarty, Surajeet & Choo, Lawrence & Fonseca, Miguel A. & Kaplan, Todd R., 2021. "Should regulators always be transparent? a bank run experiment," European Economic Review, Elsevier, vol. 136(C).
    18. Yaron Leitner, 2014. "Should regulators reveal information about banks?," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 1-8.
    19. Wang, Qian & Su, Zhongnan & Chen, Xinyang, 2021. "Information disclosure and the default risk of online peer-to-peer lending platform," Finance Research Letters, Elsevier, vol. 38(C).
    20. Michal Kowalik, 2016. "Opacity and Disclosure in Short-Term Wholesale Funding Markets," Supervisory Research and Analysis Working Papers RPA 16-2, Federal Reserve Bank of Boston.
    21. König-Kersting, Christian & Trautmann, Stefan T. & Vlahu, Razvan, 2022. "Bank instability: Interbank linkages and the role of disclosure," Journal of Banking & Finance, Elsevier, vol. 134(C).

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