Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/67402 
Year of Publication: 
2012
Series/Report no.: 
Bundesbank Discussion Paper No. 32/2012
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
The game-theoretical analysis of this paper shows that stress tests that cover the entire banking sector (macro stress tests) can be performed by institutional supervisors to improve welfare. In a multi-receiver framework of Bayesian persuasion we show that a banking authority can create value when committing to disclose the stress-testing methodology (signal-generating process) together with the stress test result (signal). Disclosing two pieces of information is a typical procedure used in stress tests. By optimally choosing these two signals, supervisors can deliver superior information to prudent investors and enhance welfare. The paper offers a new theory to explain why stress tests are generally welfare enhancing. We also offer a treatment of the borderline case where the banking sector is hit by a crisis, in which case the supervisor will optimally disclose an uninformative signal.
Subjects: 
Stress Tests
Supervisory Information
Bayesian Persuasion
Multiple Receivers
Disclosure
JEL: 
D81
D83
G28
ISBN: 
978-3-86558-868-5
Document Type: 
Working Paper

Files in This Item:
File
Size
246.67 kB





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