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Public Disclosure and Bank Failures
By Tito Cordella and Eduardo Levy Yeyati
Full Text of This Article (PDF 1,191 K)
Abstract: We study how public disclosure of banks' risk exposure affects banks'
risk taking incentives and assesses the impact of the presence of informed depositors on the
soundness of the banking system. We find that when banks have complete control over the
volatility of their loan portfolio, public disclosure reduces the probability of banking crisis.
However, when banks do not control their risk exposure, the presence of informed depositors
may increase the probability of bank failures. [JEL D28,G14,G21,G28]
© 1998 International Monetary Fund