Bank Runs, Bank Competition and Opacity

Toni Ahnert and David Martinez-Miera

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

Abstract: We model asset opacity and deposit rate choices of banks who imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. Higher competition increases deposit rates and bank fragility, resulting in an intermediate socially optimal level of bank competition. We provide a novel theory of bank opacity. The cost of opacity is more partial runs by creditors, which induces costly liquidation of investment and lowers current profits. The benefit of opacity is to deter entry of competitors, which increases bank charter value. Banks can be excessively opaque, motivating transparency regulation.

Keywords: Competition; entry; opacity; fragility; bank run; global games; competition policy; transparency regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-com and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econstor.eu/bitstream/10419/242348/1/vfs-2021-pid-48909.pdf (application/pdf)

Related works:
Working Paper: Bank Runs, Bank Competition and Opacity (2021)
Working Paper: Bank Runs, Bank Competition and Opacity (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc21:242348

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