Cryptography and the economics of supervisory information: balancing transparency and confidentiality
We elucidate the tradeoffs between transparency and confidentiality in the context of financial regulation. The structure of information in financial contexts creates incentives with a pervasive effect on financial institutions and their relationships. This includes supervisory institutions, which must balance the opposing forces of confidentiality and transparency that arise from their examination and disclosure duties. Prudential supervision can expose confidential information to examiners who have a duty to protect it. Disclosure policies work to reduce information asymmetries, empowering investors and fostering market discipline. The resulting confidentiality/transparency dichotomy tends to push supervisory information policies to one extreme or the other. We argue that there are important intermediate cases in which limited information sharing would be welfare-improving, and that this can be achieved with careful use of new techniques from the fields of secure computation and statistical data privacy. We provide a broad overview of these new technologies. We also describe three specific usage scenarios where such beneficial solutions might be implemented.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.clevelandfed.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joseph E. Stiglitz, 2000. "The Contributions Of The Economics Of Information To Twentieth Century Economics," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1441-1478, November.
- Ashok Vir Bhatia, 2011. "Consolidated Regulation and Supervision in the United States," IMF Working Papers 11/23, International Monetary Fund.
- Payne, Richard, 2003. "Informed trade in spot foreign exchange markets: an empirical investigation," Journal of International Economics, Elsevier, vol. 61(2), pages 307-329, December.
- Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, vol. 2(3), pages 243-265, October.
- Milgrom, Paul & Stokey, Nancy, 1982.
"Information, trade and common knowledge,"
Journal of Economic Theory,
Elsevier, vol. 26(1), pages 17-27, February.
- Alejandro Komai & Gary Richardson, 2011. "A Brief History of Regulations Regarding Financial Markets in the United States: 1789 to 2009," NBER Working Papers 17443, National Bureau of Economic Research, Inc.
- Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
- Bessembinder, Hendrik & Maxwell, William & Venkataraman, Kumar, 2006. "Market transparency, liquidity externalities, and institutional trading costs in corporate bonds," Journal of Financial Economics, Elsevier, vol. 82(2), pages 251-288, November.
- Peter Bogetoft & Kristoffer Boye & Henrik Neergaard-Petersen & Kurt Nielsen, 2007. "Reallocating sugar beet contracts: can sugar production survive in Denmark?," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 34(1), pages 1-20, March.
- Merton, Robert C., 1977. "On the pricing of contingent claims and the Modigliani-Miller theorem," Journal of Financial Economics, Elsevier, vol. 5(2), pages 241-249, November.
- S. P. Kothari & Susan Shu & Peter D. Wysocki, 2009. "Do Managers Withhold Bad News?," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 241-276, 03.
- Donald P. Morgan & Stavros Peristiani & Vanessa Savino, 2010. "The information value of the stress test and bank opacity," Staff Reports 460, Federal Reserve Bank of New York.
- Oliver E. Williamson, 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 171-195, Summer.
When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:1312. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lee Faulhaber)
If references are entirely missing, you can add them using this form.