Runs versus Lemons: Information Disclosure and Fiscal Capacity

Thomas Philippon (), Joseba Martinez and Miguel Faria e castro
Authors registered in the RePEc Author Service: Miguel Faria-e-Castro

No 10614, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We characterize the optimal use of information disclosure and fiscal backstops during financial crises. In our model, financial crises force governments to choose between runs and lemons. Revealing information about banks? assets reduces adverse selection in credit markets, but it can also create inefficient runs on weak banks. A fiscal backstop mitigates this risk and allows the government to pursue a high disclosure strategy. A government with a strong fiscal position is more likely to run informative stress tests than a government with a weak fiscal position. As a result, such a government is also less likely to rely on outright bailouts.

Keywords: Bailouts; Credit guarantees; Deposit insurance; Fiscal backstop; Stress tests (search for similar items in EconPapers)
JEL-codes: E5 E6 G1 G2 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-cfn, nep-cta and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2017)
Working Paper: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2016)
Working Paper: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2015)
Working Paper: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2015)
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