Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79913
Authors: 
Gick, Wolfgang
Pausch, Thilo
Year of Publication: 
2013
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Banks and Crisis D19-V3
Abstract: 
This paper argues that stress tests encompassing the entire banking sector (macro stress tests) can be designed to improve welfare. We develop a multi-receiver framework of Bayesian persuasion to show that a banking supervisor can create value when he commits to disclose the stress-testing methodology (signal-generating process) together with the stress test result (signal). By optimally choosing the two signals, supervisors can deliver superior information that will deliver a higher expected utility to prudent investors when acting accordingly. The paper uses an equilibrium construction with a continuum of receivers. We find that banking supervisors create welfare as optimal disclosure reduces uncertainty and leads to better risk-adjusted behavior on the investors' side and to less financial market volatility.
JEL: 
D81
D84
G28
Document Type: 
Conference Paper

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