In this paper, we investigate the relationship between the transparency of banks and the fragility of the banking system. We show that information-based bank runs may be inefficient because the deposit contract designed to provide liquidity induces depositors to have excessive incentives to withdraw. An improvement in the transparency of a bank may reduce depositor welfare by increasing the chance of an inefficient contagious run on other banks. A deposit insurance system in which some depositors are fully insured and the others are partially insured can ameliorate this inefficiency. Under such a system, bank runs can serve as an efficient mechanism for disciplining banks. We also consider bank managers' control over the timing of information disclosure, and find that bank managers may use their influence to eliminate both inefficient and efficient bank runs.

Using U.S. banking data between 1993 and 2014, this paper investigates the relationship between CEO optimism and bank liquidity creation. It finds that banks with optimistic CEOs create more liquidity over the entire sample period. In addition, the positive effect of CEO optimism on liquidity creation became stronger during the subprime crisis of 2007‒2009, and this stronger effect was mainly driven by banks with high capital ratios and large banks. These results imply that CEO optimism is likely to encourage banks to create liquidity, especially during banking crises. The results presented in this paper hold when subjected to various robustness checks.