Optimal Disclosure of Supervisory Information in the Banking Sector

23 Pages Posted: 18 Feb 2012

See all articles by Wolfgang Gick

Wolfgang Gick

Free University of Bozen-Bolzano; Research Institute of Industrial Economics (IFN)

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)

Free University of Bozen-Bolzano ( email )

Sernesiplatz 1
Bozen-Bolzano, BZ 39100
Italy

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Thilo Pausch

Deutsche Bundesbank ( email )

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

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