Transparency in the banking sector
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.
|Date of creation:||2011|
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- 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.
- Jacco Thijssen & Kuno Huisman & Peter Kort, 2006. "The effects of information on strategic investment and welfare," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(2), pages 399-424, 06.
- 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.
- 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.
- Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
- Citanna, Alessandro & Villanacci, Antonio, 2000.
"Incomplete Markets, Allocative Efficiency, and the Information Revealed by Prices,"
Journal of Economic Theory,
Elsevier, vol. 90(2), pages 222-253, February.
- 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.
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