Does Bank Transparency Matter?

Banks and Bank Systems, Volume 9, Issue 1, 75-93

19 Pages Posted: 22 Nov 2016

See all articles by Perihan Iren

Perihan Iren

Zayed University

Alan K. Reichert

Cleveland State University

Dieter Gramlich

Baden-Wuerttemberg Cooperative State University Mosbach (DHBW)

Date Written: 2014

Abstract

Utilizing a sample of large US banks, this study examines the benefits of bank transparency using several key performance and stability measures over the 2001-2008 period. The market’s reactions to disclosure events are examined on a before-and-after comparison basis using a standard event study approach. Furthermore, the most and the least transparent banks are compared in terms of their relative performance and stability. In addition, a sample of both healthy and weak banks which are heavily involved in loan securitization and credit derivative activities are examined to identify the extent to which greater transparency stabilizes (destabilizes) and/or increases (decreases) bank performance. Finally, a logit model is used to see if bank disclosure played a role in the recent financial crisis. Surprisingly the results suggest that highly transparent banks are riskier than their less transparent peers. Specifically, greater disclosure regarding their securitization and credit derivative activities submitted on regulatory reports, as well as extensive coverage of credit derivatives in their annual report, increases the probability of an institution being classified as a “troubled” bank.

Keywords: banking transparency, banking disclosure, information disclosure, bank performance, bank stability, secu- ritization, credit derivatives, financial crisis

JEL Classification: G14, G21

Suggested Citation

Iren, Perihan and Reichert, Alan K. and Gramlich, Dieter, Does Bank Transparency Matter? (2014). Banks and Bank Systems, Volume 9, Issue 1, 75-93. Available at SSRN: https://ssrn.com/abstract=2874146

Perihan Iren (Contact Author)

Zayed University ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

Alan K. Reichert

Cleveland State University ( email )

Cleveland, OH 44115
United States

Dieter Gramlich

Baden-Wuerttemberg Cooperative State University Mosbach (DHBW) ( email )

Lohrtalweg 10
Mosbach, 74821
Germany

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