Disclosure of Bank-specific Information and the Stability of Financial Systems
Liang Dai, Dan Luo, Ming Yang, Disclosure of Bank-Specific Information and the Stability of Financial Systems, The Review of Financial Studies, Volume 37, Issue 4, April 2024, Pages 1315–1367, https://doi.org/10.1093/rfs/hhad089
86 Pages Posted: 2 Mar 2021 Last revised: 26 Mar 2024
Date Written: November 7, 2023
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 shortfalls 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: Suggested Citation