The Relation between Bank Resolutions and Information Environment: Evidence from the Auctions for Failed Banks

41 Pages Posted: 17 Dec 2011 Last revised: 17 Oct 2013

See all articles by Joao Granja

Joao Granja

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 21, 2013

Abstract

This study examines the impact of disclosure requirements on the resolution costs of failed banks. Consistent with the hypothesis that disclosure requirements mitigate information asymmetries in the auctions for failed banks, I find that when failed banks are subject to more comprehensive disclosure requirements, regulators incur lower costs of closing a bank and retain a lower portion of the failed bank’s assets, while bidders that are geographically more distant are more likely to participate in the bidding for the failed bank. The paper provides new insights on the relation between disclosure and the reorganization of a banking system when the regulators’ preferred plan of action is to promote the acquisition of undercapitalized banks by healthy ones. The results suggest that disclosure regulation policy influences the cost of resolution of a bank and, as a result, could be an important factor in the definition of the optimal resolution strategy during a banking crisis event.

Keywords: Banks, Failures, Disclosure Regulation

Suggested Citation

Granja, Joao, The Relation between Bank Resolutions and Information Environment: Evidence from the Auctions for Failed Banks (August 21, 2013). Available at SSRN: https://ssrn.com/abstract=1973705 or http://dx.doi.org/10.2139/ssrn.1973705

Joao Granja (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Room 326
Chicago, IL 60637
United States

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