Investor information and bank instability during the European debt crisis

Silvia Iorgova and Chase P. Ross

Journal of Financial Stability, 2023, vol. 64, issue C

Abstract: Outside of financial crises, investors have little incentive to produce private information on banks’ short-term liabilities held as information-insensitive safe assets. The same does not hold during crises. We compare the information effects of different policy interventions. We measure information production using credit default swap spreads during the Global Financial Crisis and the European debt crisis. We study abnormal information production around major events and find that capital injections reduced abnormal information production while early European stress tests increased it. High levels of information production predict bank balance sheet contraction and higher government expenditures to support financial institutions.

Keywords: Information production; Financial crisis; Safe asset (search for similar items in EconPapers)
JEL-codes: G01 G20 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:64:y:2023:i:c:s1572308922001218

DOI: 10.1016/j.jfs.2022.101100

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