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Transparency in the banking sector

  • Broll, Udo
  • Eckwert, Bernhard
  • Eickhoff, Andreas
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    The paper revisits the impact of uncertainty on the decision problem of a bank. The bank extends risky loans to private investors and sells deposits to savers at fixed rates. The uncertainty under which deposit/loan-portfolios are chosen by banks is endogenized through an information system that conveys public signals about the return distribution of bank loans. Transparency in the banking sector is defined in terms of the reliability of these signals. We find that higher transparency always raises expected bank profits, but may lead to a higher or lower expected loan volume. Moreover, higher transparency may reduce economic welfare.

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    File URL: http://econstor.eu/bitstream/10419/55036/1/684379562.pdf
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    Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 05/11.

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    Date of creation: 2011
    Date of revision:
    Handle: RePEc:zbw:tuddps:0511
    Contact details of provider: Postal: 01062 Dresden
    Phone: ++49 351 463 2196
    Fax: ++49 351 463 7739
    Web page: http://www.tu-dresden.de/wiwi/
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    1. Alessandro Citanna & Antonio Villanacci, . "Incomplete markets, allocative efficiency and the information revealed by prices," GSIA Working Papers 10, Carnegie Mellon University, Tepper School of Business.
    2. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
    3. J.J.J. Thijssen & K.J.M. Huisman & P.M. Kort, 2003. "The Effects of Information on Strategic Investment and Welfare," Trinity Economics Papers 200310, Trinity College Dublin, Department of Economics.
    4. Wagener, Andreas, 2003. "Comparative statics under uncertainty: The case of mean-variance preferences," European Journal of Operational Research, Elsevier, vol. 151(1), pages 224-232, November.
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