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Bank transparency and market efficiency

Author

Listed:
  • Beyer, Andreas
  • Dautović, Ernest

Abstract

This paper explores the impact of bank transparency on market efficiency by comparing banks that disclose supervisory capital requirements to those that remain opaque. Due to the informational content of supervisory capital requirements for the market this opacity might hinder market efficiency. The paper estimates an average 11.5% reduction in funding costs for transparent versus opaque banks. However, there is some heterogeneity in those effects. Transparency helps the market to sort across safer and riskier banks. Conditional on disclosure, the safest quartile of banks, those with a CET1 P2R lower than 1.5% of risk-weighted assets, benefits in average from 31.1% lower funding costs. The paper concludes that supervisory transparency is beneficial, supporting the view that supervisory transparency enhances market discipline by allowing markets to better evaluate and price the risk associated with each bank. JEL Classification: D5, E5, E58, G18, G21

Suggested Citation

  • Beyer, Andreas & Dautović, Ernest, 2025. "Bank transparency and market efficiency," Working Paper Series 3031, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253031
    Note: 336354
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3031~a6e136032e.en.pdf
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    References listed on IDEAS

    as
    1. Baiman, S & Verrecchia, RE, 1996. "The relation among capital markets, financial disclosure, production efficiency, and insider trading," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 34(1), pages 1-22.
    2. Jannis Bischof & Holger Daske, 2013. "Mandatory Disclosure, Voluntary Disclosure, and Stock Market Liquidity: Evidence from the EU Bank Stress Tests," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 51(5), pages 997-1029, December.
    3. Viral V. Acharya & Stephen G. Ryan, 2016. "Banks’ Financial Reporting and Financial System Stability," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 54(2), pages 277-340, May.
    4. Bischof, Jannis & Laux, Christian & Leuz, Christian, 2021. "Accounting for financial stability: Bank disclosure and loss recognition in the financial crisis," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1188-1217.
    5. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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

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