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Optimal bank transparency

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  • Moreno, Diego
  • Takalo, Tuomas

Abstract

Consider a competitive bank whose illiquid asset portfolio is funded by short-term debt that needs to be refinanced before the asset matures. In this setting, we show that maximal transparency is not socially optimal, and that the existence of social externalities of bank failures reduces further the optimal level of transparency. Moreover, asset risk taking decreases as the level of transparency decreases towards the socially optimal level. As for the sign of the impact of transparency on refinancing risk, it is negative given the asset´s risk, but it is ambiguous if we account for its indirect effect via risk taking.

Suggested Citation

  • Moreno, Diego & Takalo, Tuomas, 2012. "Optimal bank transparency," Research Discussion Papers 9/2012, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:2012_009
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    References listed on IDEAS

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    1. repec:taf:jbemgt:v:18:y:2017:i:5:p:954-973 is not listed on IDEAS
    2. Irina Andrievskaya & Mikhail Raschupkin, 2015. "Is it Worth Being Transparent? Evidence from the Russian Banking System," HSE Working papers WP BRP 51/FE/2015, National Research University Higher School of Economics.
    3. Étienne Farvaque & Catherine Refait-Alexandre, 2016. "Les exigences de transparence des accords de Bâle : aubaine ou fardeau pour les pays en développement ?," Mondes en développement, De Boeck Université, vol. 0(1), pages 131-147.
    4. Beatty, Anne & Liao, Scott, 2014. "Financial accounting in the banking industry: A review of the empirical literature," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 339-383.
    5. Andrievskaya, Irina & Semenova, Maria, 2016. "Does banking system transparency enhance bank competition? Cross-country evidence," Journal of Financial Stability, Elsevier, vol. 23(C), pages 33-50.

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