Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241253 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-30
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility. Therefore, perfect competition is not socially optimal. We also propose a theory of bank opacity. The cost of opacity is more withdrawals from a solvent bank, lowering bank profits. The benefit of opacity is to deter the entry of a competitor, increasing future bank profits. The excessive opacity of incumbent banks rationalizes transparency regulation.
Subjects: 
Financial institutions
Financial markets
Financial stability
Financial system regulationand policies
Wholesale funding
JEL: 
G01
G21
G2
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
880.26 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.