Journal of Finance Vol. 70 No. 4 2015
Transparency in the Financial System: Rollover Risk and Crises
open access
Abstract
We present a theory of optimal transparency when banks are exposed to rollover risk. Disclosing bank‐specific information enhances the stability of the financial system during crises, but has a destabilizing effect in normal economic times. Thus, the regulator optimally increases transparency during crises. Under this policy, however, information disclosure signals a deterioration of economic fundamentals, which gives the regulator ex post incentives to withhold information. This commitment problem precludes a disclosure policy that provides ex ante optimal insurance against aggregate shocks, and can result in excess opacity that increases the likelihood of a systemic crisis.
- DOI
- 10.1111/jofi.12270
- Volume
- 70
- Issue
- 4
- Pages
- 1805-1837
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref