Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67402
Authors: 
Gick, Wolfgang
Pausch, Thilo
Year of Publication: 
2012
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 32/2012
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

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