Opacity, Signaling, and Bail-ins

Kentaro Asai (), Bruce Grundy () and Ryuichiro Izumi
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Kentaro Asai: Kyoto University
Bruce Grundy: Australian National University

No 2025-003, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: Should banks be transparent during a bail-in? Banks suffering losses may bail-in creditors to optimally allocate resources between early and late withdrawers. However, if losses are private information, then bail-ins may signal asset quality. In the absence of signaling, banks can sell assets at a pooled price, effectively insuring creditors against asset risks. However, when bail-ins signal quality, banks may delay bail-ins and sell assets at higher prices, but this incentive to delay can trigger inefficient bank runs. To prevent such runs, banks should choose to be either fully transparent or entirely opaque, ensuring asset quality is not private information.

Keywords: Bank Runs; Swing Pricing; Bail-ins; Signaling; Asymmetric Information; Opacity (search for similar items in EconPapers)
JEL-codes: D82 D84 D86 E44 G21 G23 G28 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2025-04
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