Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212022
Year of Publication: 
2005
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 24/2005
Publisher: 
Bank of Finland, Helsinki
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.
Subjects: 
bank run
contagion
transparency
market discipline
deposit insurance
JEL: 
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
952-462-241-6
Document Type: 
Working Paper

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