Transparency in the financial system: rollover risk and crises

Bouvard, Matthieu, Chaigneau, Pierre and Motta, Adolfo (2012) Transparency in the financial system: rollover risk and crises. Financial Markets Group Discussion Papers (700). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

The paper presents a theory of optimal transparency in the financial system when financial institutions have short-term liabilities and are exposed to rollover risk. Our analysis indicates that transparency enhances the stability of the financial system during crises but may have a destabilizing effect during normal economic times. Thus, the optimal level of transparency is contingent on the state of the economy, with the regulator increasing disclosure in times of crises. Under this policy, however, an increase in disclosure signals a deterioration of the economy's fundamentals, so the regulator has incentives to withhold information ex-post. In that case, the regulator may have to commit ex-ante to a degree of transparency which trades off the frequency and magnitude of financial crises. The analysis also considers the possibility that financial institutions, in an attempt to deal with rollover risk, either diversify their risks or increase the liquidity of their balance sheets.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2012 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies G - Financial Economics > G0 - General > G00 - General
Date Deposited:	26 Jun 2023 14:33
Last Modified:	11 Dec 2024 19:46
URI:	http://eprints.lse.ac.uk/id/eprint/119052

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