Banking and Transparency: Is More Information Always Better?
This paper shows that transparency in banking can be harmful from a social planner's point of view. According to our model, enhancing transparency above a certain level may lead to the inefficient liquidation of a bank. The reason lies in the nature of a standard deposit contract: its payoff scheme has limited upside gains (cap) but leaves the depositor with the downside risk. Accordingly, depositors will not take into account possible future upside gains of the bank when deciding whether or not to withdraw their deposits. Our result points towards a trade-off the regulator faces: while enhancing transparency may be useful to reduce incentives for excessive risk-taking (moral hazard), it may also increase the risk of inefficient bank runs.
|Date of creation:||2009|
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- Ari Hyytinen & Tuomas Takalo, 2002.
"Enhancing Bank Transparency: A Re-assessment,"
Review of Finance,
European Finance Association, vol. 6(3), pages 429-445.
- Hyytinen, A. & Takalo, T., 2000. "Enhancing Bank Transparency: a Re-assessment," University of Helsinki, Department of Economics 492, Department of Economics.
- Hyytinen, Ari & Takalo, Tuomas, 2000. "Enhancing bank transparency : A re-assessment," Research Discussion Papers 10/2000, Bank of Finland.
- Hyytinen, Ari & Takalo, Tuomas, 2002. "Enchancing Bank Transparency : A Re-assessment," Discussion Papers 828, The Research Institute of the Finnish Economy.
- Cordella, Tito & Levy Yeyati, Eduardo, 1998.
"Public Disclosure and Bank Failures,"
CEPR Discussion Papers
1886, C.E.P.R. Discussion Papers.
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