Mandatory Disclosure and Financial Contagion

Fernando Alvarez and Gadi Barlevy

No 21328, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores whether mandatory disclosure of bank balance sheet information can improve welfare. In our benchmark model, mandatory disclosure can raise welfare only when markets are frozen, i.e. when investors refuse to fund banks in the absence of balance sheet information. Even then, intervention is only warranted if there is sufficient contagion across banks, in a sense we make precise within our model. In the same benchmark model, if in the absence of balance sheet information investors would fund banks, mandatory disclosure cannot raise welfare and it will be desirable to forbid banks to disclose their financial positions. When we modify the model to allow banks to engage in moral hazard, mandatory disclosure can increase welfare in normal times. But the case for intervention still hinges on there being sufficient contagion. Finally, we argue disclosure represents a substitute to other financial reforms rather than complement them as some have argued.

JEL-codes: G01 G18 G33 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ban and nep-cba
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as Alvarez, Fernando & Barlevy, Gadi, 2021. "Mandatory disclosure and financial contagion," Journal of Economic Theory, Elsevier, vol. 194(C).

Downloads: (external link)
http://www.nber.org/papers/w21328.pdf (application/pdf)

Related works:
Journal Article: Mandatory disclosure and financial contagion (2021)
Working Paper: Mandatory Disclosure and Financial Contagion (2014)
Working Paper: Mandatory Disclosure and Financial Contagion (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:21328

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w21328

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().