Transparency in the financial system: rollover risk and crises

Matthieu Bouvard, Pierre Chaigneau and Adolfo Motta

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The paper presents a theory of optimal transparency in the financial system when financial institutions have short-term liabilities and are exposed to rollover risk. Our analysis indicates that transparency enhances the stability of the financial system during crises but may have a destabilizing effect during normal economic times. Thus, the optimal level of transparency is contingent on the state of the economy, with the regulator increasing disclosure in times of crises. Under this policy, however, an increase in disclosure signals a deterioration of the economy's fundamentals, so the regulator has incentives to withhold information ex-post. In that case, the regulator may have to commit ex-ante to a degree of transparency which trades off the frequency and magnitude of financial crises. The analysis also considers the possibility that financial institutions, in an attempt to deal with rollover risk, either diversify their risks or increase the liquidity of their balance sheets.

JEL-codes: G00 G21 G24 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2012-02-01
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http://eprints.lse.ac.uk/119052/ Open access version. (application/pdf)

Related works:
Journal Article: Transparency in the Financial System: Rollover Risk and Crises (2015)
Working Paper: Transparency in the financial system: rollover risk and crises (2012)
Working Paper: Transparency in the Financial System: Rollover Risk and Crises (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119052

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