Bank transparency, asset and liquidity risks

Yehning Chen, Iftekhar Hasan and Tuomas Takalo

No 4/2025, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We study the effects of bank transparency on both banks' asset and liquidity risks, and ultimately, on banking sector stability and welfare. We show how enhanced bank transparency increases banks' vulnerability to excessive deposit outflows, but this threat of a liquidity crisis incentivizes banks to choose safer assets. We find that bank stability and welfare are a nonmonotonic function of transparency, and that they are maximized at an intermediate level of transparency, which is larger than the one preferred by banks but lower than what would result in excessive deposit outflows. Our model also suggests that bank transparency and deposit insurance are complementary policy tools, and that bank regulators should adjust disclosure requirements for banks procyclically

Keywords: bank transparency; bank runs; asset risk taking; banking stability; deposit insurance (search for similar items in EconPapers)
JEL-codes: D83 G21 G28 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:316423

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