Bank instability: Interbank linkages and the role of disclosure

Christian König-Kersting, Stefan Trautmann and Razvan Vlahu

Journal of Banking & Finance, 2022, vol. 134, issue C

Abstract: We study the impact of disclosure about bank fundamentals on depositors’ behavior in the presence (and absence) of economic linkages between financial institutions. Using a controlled laboratory environment, we identify under which conditions disclosure is conducive to bank stability. We find that bank deposits are sensitive to perceived bank performance. While banks with strong fundamentals benefit from more precise disclosure, an opposite effect is present for solvent banks with weaker fundamentals. Depositors take information about economic linkages into account and correctly identify when disclosure about one institution conveys meaningful information for others. Our findings suggest potential costs of bank transparency and that disclosure may not always be stability-enhancing.

Keywords: Disclosure; Banks; Interbank linkages; Coordination; Beliefs (search for similar items in EconPapers)
JEL-codes: D81 G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Bank instability: Interbank linkages and the role of disclosure (2020)
Working Paper: Bank instability: Interbank linkages and the role of disclosure (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621003046

DOI: 10.1016/j.jbankfin.2021.106353

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