The transparency of the banking industry and the efficiency of information-based bank runs

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Title: The transparency of the banking industry and the efficiency of information-based bank runs
ISBN: 952-462-241-6
Author: Chen, Yehning ; Hasan, Iftekhar
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2005
Series number: 24/2005
Year of publication: 2005
Publication date: 8.8.2005
Published in: Published in Journal of Financial Intermediation, Volume 15, Issue 3, July 2006: 307-331
Pages: 38 s.
Keywords: pankkikriisit; pankkitoiminta; tehokkuus; avoimuus; leviäminen; talletussuoja; talletuspaot
JEL: G21; G28
Abstract: In this paper, we investigate the relationship between the transparency of banks and the fragility of the banking system.We show that information-based bank runs may be inefficient because the deposit contract designed to provide liquidity induces depositors to have excessive incentives to withdraw.An improvement in transparency of a bank may reduce depositor welfare through increasing the chance of an inefficient contagious bank run on other banks.A deposit insurance system in which some depositors are fully insured and the others are partially insured can ameliorate this inefficiency.Under such a system, bank runs can serve as an efficient mechanism for disciplining banks.We also consider bank managers' control over the timing of information disclosure, and find that they may lack the incentive to reveal information about their banks. Key words: bank run, contagion, transparency, market discipline, deposit insurance JEL classification numbers: G21, G28
Note: Ilmestynyt myös JOURNAL OF FINANCIAL INTERMEDIATION 2006 ; 15 ; 3.

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