Risk Reporting and Bank Runs

Susanne Homölle

Schmalenbach Business Review (sbr), 2009, vol. 61, issue 1, 2-39

Abstract: Increasing risk disclosure of banks, e.g., via risk reporting in their annual accounts, is high on the agenda. In this paper, I analyze whether risk reporting of banks shows only favorable effects, as regulatory authorities suppose, or whether there are also undesired effects. Following other studies on deposit contracts and bank runs, I concentrate on the impact on depositors’ withdrawal decisions and banks’ insolvency risk. My analysis shows mixed results: risk reporting does not generally lead to a decrease in banks’ risk exposure and the probability of bank runs, respectively. Instead, it induces higher insolvency risk under certain conditions, which I identify, and may even lower welfare.

Keywords: Bank Run; Insolvency Risk; Risk Reporting (search for similar items in EconPapers)
JEL-codes: G21 M41 (search for similar items in EconPapers)
Date: 2009
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