Reporting Rules in Bank Runs
43 Pages Posted: 24 Jan 2021
Date Written: November 30, 2020
We study the role of reporting rules in the context of bank runs. In our model, a financial institution receives an early but imprecise estimate of the performance of its investment and issues a report subject to a reporting rule. We find that, from a financial-stability standpoint, the optimal reporting rule requires full disclosure when the financial institution's early estimate is sufficiently unfavorable, but no disclosure otherwise. Importantly, the threshold below which the financial institution reports should be tailored to the financial institution's exposure to bank-run risk. In particular, the optimal reporting threshold is non-monotonic and U-shaped in the bank-run risk. We also relate our results to current accounting standards for asset impairments.
Keywords: Reporting rules; impairment; financial institutions; bank runs; financial stability.
JEL Classification: G21, G28, M41, M48.
Suggested Citation: Suggested Citation