Opacity, Signaling, and Bail-Ins

67 Pages Posted: 31 Mar 2023

See all articles by Kentaro Asai

Kentaro Asai

Kyoto University

Bruce D. Grundy

RSFAS Australian National University

Ryuichiro Izumi

Wesleyan University

Date Written: March 22, 2023

Abstract

Should banks be transparent when a bail-in occurs? Banks that have experienced losses may bail-in creditors to allocate resources optimally between early and late withdrawers. However, if banks have private information about their losses, then bail-ins may become a signal of asset quality. When bail-ins do not signal quality, banks immediately sell assets at a pooled price, thereby insuring creditors against asset risks. However, when bail-ins are a signal of quality, banks may attempt to delay bail-ins and sell assets at a higher price, but the incentive to delay can induce an inefficient bank run. To avoid inducing inefficient runs, banks will choose to be either transparent or opaque so that their asset quality is not private information.

Keywords: Bank Runs, Swing Pricing, Bail-ins, Signaling, Asymmetric Information, Opacity

JEL Classification: E44, G21, G23, G28, D82, D84, D86

Suggested Citation

Asai, Kentaro and Grundy, Bruce D. and Izumi, Ryuichiro, Opacity, Signaling, and Bail-Ins (March 22, 2023). Available at SSRN: https://ssrn.com/abstract=4396051 or http://dx.doi.org/10.2139/ssrn.4396051

Kentaro Asai (Contact Author)

Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Bruce D. Grundy

RSFAS Australian National University ( email )

Kingsley Street
Acton ACT
Australia
0431247108 (Phone)

Ryuichiro Izumi

Wesleyan University ( email )

Middletown, CT 06459
United States

HOME PAGE: http://www.ryuichiroizumi.com

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