Consequences of Mandated Bank Liquidity Disclosures
62 Pages Posted: 25 Feb 2016 Last revised: 29 Aug 2018
Date Written: August 28, 2018
This paper examines the capital market consequences of mandatory disclosures of banks’ liquidity and the resulting changes in banks’ behavior. Employing a hand-collected sample of the disclosures of banks borrowing from the US Federal Reserve Discount Window (DW), I find that these disclosures contain positive incremental market information and decrease banks’ cost of capital. However, I also find evidence of endogenous costs associated with more disclosure as banks respond by increasing liquidity holdings and decreasing risky assets. Following the disclosures, affected banks avoid accessing the DW facility, consistent with the presence of the DW stigma.
Keywords: Liquidity disclosure, discount window, consequences of disclosure, bank liquidity, prudential regulation of banks, real effects
JEL Classification: G18, G21, G28, M41
Suggested Citation: Suggested Citation