Transparency in the Financial System: Rollover Risk and Crises

56 Pages Posted: 17 Dec 2011 Last revised: 10 Sep 2014

See all articles by Matthieu Bouvard

Matthieu Bouvard

McGill University - Desautels Faculty of Management

Pierre Chaigneau

Queen's University

Adolfo de Motta

McGill University - Desautels Faculty of Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 2014

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.

Keywords: transparency, banking, rollover risk, stress tests, crises

JEL Classification: G21, G24, G01

Suggested Citation

Bouvard, Matthieu and Chaigneau, Pierre and de Motta, Adolfo, Transparency in the Financial System: Rollover Risk and Crises (August 2014). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1973673 or http://dx.doi.org/10.2139/ssrn.1973673

Matthieu Bouvard (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Pierre Chaigneau

Queen's University ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Adolfo De Motta

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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