Optimal Disclosure of Supervisory Information in the Banking Sector

23 Pages Posted: 18 Feb 2012

See all articles by Wolfgang Gick

Wolfgang Gick

Harvard University - Center for European Studies; Tufts University - Economics Department

Thilo Pausch

Deutsche Bundesbank

Date Written: February 15, 2012

Abstract

We analyze disclosure of multiple pieces of information by a bank supervisor to a continuum of investors. Specifically, we present a model to explain why a banking authority, observing the state of the banking system, is willing to commit to perform stress tests, and disclose their results. Following the literature on persuasion games we show in a specific multi-receiver model consisting of investors that differ in their beliefs on risk, that disclosing information together with the signal generating process leads to a unique optimum of the risk disclosure process. The paper thus explains why stress tests create value as they will generally improve information disclosure between supervisor and investors.

Keywords: supervisory information, persuasion games, multiple receivers, cheap talk and risk disclosure, stress testing

JEL Classification: D83, G18, G28

Suggested Citation

Gick, Wolfgang H. and Pausch, Thilo, Optimal Disclosure of Supervisory Information in the Banking Sector (February 15, 2012). Available at SSRN: https://ssrn.com/abstract=2006852 or http://dx.doi.org/10.2139/ssrn.2006852

Wolfgang H. Gick (Contact Author)

Harvard University - Center for European Studies ( email )

27 Kirkland St.
Cambridge, MA 02138
United States
(617) 495 4303 (Phone)
(617) 495 8509 (Fax)

HOME PAGE: http://www.ces.fas.harvard.edu/people/p135.html

Tufts University - Economics Department ( email )

Medford, MA 02155
United States

HOME PAGE: http://wolfgick.wordpress.com

Thilo Pausch

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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