Public Disclosure and Bank Failures
August 1, 1997
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Summary
This paper examines how public disclosure of banks’ risk exposure affects banks’ risk-taking incentives and assesses how the presence of informed depositors influences the soundness of the banking system. It finds that, when banks have complete control over the volatility of their loan portfolios, public disclosure reduces the probability of banking crises. However, when banks do not control their risk exposure, the presence of informed depositors may increase the probability of bank failures.
Subject: Bank credit, Bank deposits, Banking, Commercial banks, Deposit rates, Distressed institutions, Financial institutions, Financial services, Money
Keywords: Bank credit, Bank deposits, charter value, Commercial banks, deposit rate, Deposit rates, Distressed institutions, loan portfolio, maximization problem, risk choice, risk level, WP
Pages:
25
Volume:
1997
DOI:
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Issue:
096
Series:
Working Paper No. 1997/096
Stock No:
WPIEA0961997
ISBN:
9781451851878
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 45, No. 1, March 1998.
