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Bank Opacity and Endogenous Uncertainty

AuthorsJungherr, Joachim
Keywordsbank opacity, information externality, bank competition, bank regulation
bank opacity
information externality
bank competition
bank regulation
Issue Date18-Dec-2013
CitationBarcelona GSE Winter Workshop on Microeconomics (2013)
AbstractWhy are banks opaque? Is there a need for policy? What is the optimal level of bank transparency? In this model, banks are special because the product they are selling is superior information about investment opportunities. Intransparent balance sheets turn this public good into a marketable private commodity. Voluntary public disclosure of this information translates into a competitive disadvantage. Bank competition results in a "race to the bottom" which leads to complete bank opacity and a high degree of aggregate uncertainty for households. Households do value public information as it reduces aggregate uncertainty, but the market does not punish intransparent banks. Policy measures can improve upon this market outcome by imposing minimum disclosure requirements on banks. Complete disclosure is socially undesirable as this eliminates all private incentives for banks to acquire costly information. The social planner chooses optimal bank transparency by trading off the benefits of reducing aggregate uncertainty for households against banks' incentives for costly information acquisition
DescriptionPresentada comunicación en el Barcelona GSE Winter Workshop on Microeconomics, celebrado el 18 de diciembre de 2013 en Barcelona (España). Presentada comunicación en la European Economic Association & Econometric Society, 2014 Parallel Meetings, celebrados del 25 al 29 de agosto de 2014 en Toulose (Francia)
Appears in Collections:(IAE) Comunicaciones congresos
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