Reporting Rules in Bank Runs

43 Pages Posted: 24 Jan 2021

See all articles by Gaoqing Zhang

Gaoqing Zhang

University of Minnesota

Ronghuo Zheng

The University of Texas at Austin - McCombs School of Business

Date Written: November 30, 2020

Abstract

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

Zhang, Gaoqing and Zheng, Ronghuo, Reporting Rules in Bank Runs (November 30, 2020). Available at SSRN: https://ssrn.com/abstract=3740168 or http://dx.doi.org/10.2139/ssrn.3740168

Gaoqing Zhang

University of Minnesota ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States

Ronghuo Zheng (Contact Author)

The University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

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