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Transparency in the Financial System: Rollover Risk and Crises
Author(s) -
BOUVARD MATTHIEU,
CHAIGNEAU PIERRE,
MOTTA ADOLFO DE
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12270
Subject(s) - transparency (behavior) , rollover (web design) , ex ante , incentive , regulator , economics , monetary economics , business , information asymmetry , financial crisis , financial system , finance , microeconomics , macroeconomics , computer security , computer science , biochemistry , chemistry , world wide web , gene
We present a theory of optimal transparency when banks are exposed to rollover risk. Disclosing bank‐specific information enhances the stability of the financial system during crises, but has a destabilizing effect in normal economic times. Thus, the regulator optimally increases transparency during crises. Under this policy, however, information disclosure signals a deterioration of economic fundamentals, which gives the regulator ex post incentives to withhold information. This commitment problem precludes a disclosure policy that provides ex ante optimal insurance against aggregate shocks, and can result in excess opacity that increases the likelihood of a systemic crisis.