Disclosure of Bank-specific Information and the Stability of Financial Systems

69 Pages Posted: 2 Mar 2021 Last revised: 7 Sep 2022

See all articles by Liang Dai

Liang Dai

Shanghai Jiao Tong University (SJTU)

Dan Luo

University of Chicago - Booth School of Business

Ming Yang

UCL

Date Written: September 1, 2022

Abstract

We find that disclosing bank-specific information reallocates systemic risk, but whether it mitigates systemic bank runs depends on the nature of information disclosed. Disclosure reveals banks' resilience to adverse shocks, and shifts systemic risk from weak to strong banks. Yet, only disclosure of banks' exposure to systemic risk can mitigate systemic bank runs because it shifts systemic risk from more vulnerable banks to those less vulnerable. Disclosure of banks' idiosyncratic shortfall of funds does not differentiate such exposure, rendering the resulting reallocation of systemic risk ineffective in mitigating systemic runs.

Keywords: information design, global games with heterogeneous agents, financial stability

JEL Classification: D83, G01, G21, G28

Suggested Citation

Dai, Liang and Luo, Dan and Yang, Ming, Disclosure of Bank-specific Information and the Stability of Financial Systems (September 1, 2022). Available at SSRN: https://ssrn.com/abstract=3762941 or http://dx.doi.org/10.2139/ssrn.3762941

Liang Dai

Shanghai Jiao Tong University (SJTU) ( email )

Antai College of Economics and Management
1954 Huashan Road
Shanghai 200030, Shanghai 200030
China

Dan Luo

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

Ming Yang (Contact Author)

UCL ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
206
Abstract Views
824
rank
209,140
PlumX Metrics