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Bank Runs, Bank Competition and Opacity

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  • Ahnert, Toni
  • Martinez-Miera, David

Abstract

We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility. Therefore, perfect competition is not socially optimal. We also propose a theory of bank opacity. The cost of opacity is more withdrawals from a solvent bank, lowering bank profits. The benefit of opacity is to deter the entry of a competitor, increasing future bank profits. The excessive opacity of incumbent banks rationalizes transparency regulation.

Suggested Citation

  • Ahnert, Toni & Martinez-Miera, David, 2021. "Bank Runs, Bank Competition and Opacity," CEPR Discussion Papers 16207, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:16207
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    More about this item

    Keywords

    bank run; Competition; competition policy; Entry; fragility; global games; opacity; transparency regulation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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