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Transparency in the Financial System: Rollover Risk and Crises

Matthieu Bouvard, Pierre Chaigneau and Adolfo de Motta

Journal of Finance, 2015, vol. 70, issue 4, 1805-1837

Abstract: type="main">

We present a theory of optimal transparency when banks are exposed to rollover risk. Disclosing bank-specific information enhances the stability of the financial system during crises, but has a destabilizing effect in normal economic times. Thus, the regulator optimally increases transparency during crises. Under this policy, however, information disclosure signals a deterioration of economic fundamentals, which gives the regulator ex post incentives to withhold information. This commitment problem precludes a disclosure policy that provides ex ante optimal insurance against aggregate shocks, and can result in excess opacity that increases the likelihood of a systemic crisis.

Date: 2015
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Working Paper: Transparency in the financial system: rollover risk and crises (2012) Downloads
Working Paper: Transparency in the Financial System: Rollover Risk and Crises (2012) Downloads
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Handle: RePEc:bla:jfinan:v:70:y:2015:i:4:p:1805-1837