Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316423 
Year of Publication: 
2025
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 4/2025
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We study the effects of bank transparency on both banks' asset and liquidity risks, and ultimately, on banking sector stability and welfare. We show how enhanced bank transparency increases banks' vulnerability to excessive deposit outflows, but this threat of a liquidity crisis incentivizes banks to choose safer assets. We find that bank stability and welfare are a nonmonotonic function of transparency, and that they are maximized at an intermediate level of transparency, which is larger than the one preferred by banks but lower than what would result in excessive deposit outflows. Our model also suggests that bank transparency and deposit insurance are complementary policy tools, and that bank regulators should adjust disclosure requirements for banks procyclically
Subjects: 
bank transparency
bank runs
asset risk taking
banking stability
deposit insurance
JEL: 
G21
G28
D83
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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