Why banks should keep secrets

Todd Kaplan

Economic Theory, 2006, vol. 27, issue 2, 357 pages

Abstract: We show that it is sometimes efficient for a bank to commit to a policy that keeps information about its risky assets private. Our model, based upon Diamond-Dybvig (1983), has the feature that banks acquire information about their risky assets before depositors acquire it. A bank has the option of using contracts where the middle-period return on deposits is contingent on this information, but by doing so it must also reveal the information. We derive the conditions on depositors’ preferences and banking technology for which a bank would prefer to keep information secret even though it must then use a non-contingent deposit contract. Copyright Springer-Verlag Berlin/Heidelberg 2006

Keywords: Deposit contracts; Interim information. (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (24)

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Working Paper: Why Banks Should Keep Secrets (2000)
Working Paper: Why Banks Should Keep Secrets
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DOI: 10.1007/s00199-004-0597-y

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