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Should Banks' Stress Test Results be Disclosed? An Analysis of the Costs and Benefits

Author

Listed:
  • Goldstein, Itay
  • Sapra, Haresh

Abstract

Stress tests have become an important component of the supervisory toolkit. However, the extent of disclosure of stress-test results remains controversial. We argue that while stress tests uncover unique information to outsiders — because banks operate in second--best environments with multiple imperfections — there are potential endogenous costs associated with such disclosure.

Suggested Citation

  • Goldstein, Itay & Sapra, Haresh, 2014. "Should Banks' Stress Test Results be Disclosed? An Analysis of the Costs and Benefits," Foundations and Trends(R) in Finance, now publishers, vol. 8(1), pages 1-54, March.
  • Handle: RePEc:now:fntfin:0500000038
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    File URL: http://dx.doi.org/10.1561/0500000038
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    Citations

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    Cited by:

    1. Flannery, Mark & Hirtle, Beverly & Kovner, Anna, 2017. "Evaluating the information in the federal reserve stress tests," Journal of Financial Intermediation, Elsevier, vol. 29(C), pages 1-18.
    2. Marcelo Fernandes & Deniz O Igan & Marcelo Pinheiro, 2015. "March Madness in Wall Street; (What) Does the Market Learn from Stress Tests?," IMF Working Papers 15/271, International Monetary Fund.
    3. Miguel Faria-e-Castro & Joseba Martinez & Thomas Philippon, 2017. "Runs versus Lemons: Information Disclosure and Fiscal Capacity," Review of Economic Studies, Oxford University Press, vol. 84(4), pages 1683-1707.
    4. Kowalik, Michal, 2016. "Opacity and Disclosure in Short-Term Wholesale Funding Markets," Risk and Policy Analysis Unit Working Paper RPA 16-2, Federal Reserve Bank of Boston.
    5. repec:eee:finsta:v:32:y:2017:i:c:p:115-123 is not listed on IDEAS
    6. Carboni, Marika & Fiordelisi, Franco & Ricci, Ornella & Lopes, Francesco Saverio Stentella, 2017. "Surprised or not surprised? The investors’ reaction to the comprehensive assessment preceding the launch of the banking union," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 122-132.

    More about this item

    Keywords

    Disclosure; Financial reporting; Bank stress test; Risk management; Financial regulation;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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