Why Banks Should Keep Secrets

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Why Banks Should Keep Secrets

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Todd R. Kaplan ()

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Todd R. Kaplan

Abstract

I present an example showing it is sometimes efficient for a bank to commit to a policy that keeps information about its risky assets private. Current practices in banking result in bankers having private information: demand deposits are non-contingent contracts, there are time lags before the public has access to updated balance sheets, and certain items on a bank's balance sheet are marked at book-value rather than market-value. The Savings & Loan failures in the 1980's have led to an increase in banking legislation such as the FIRREA of 1989 and the FDICIA of 1991. These laws affect the release of information about a bank's assets by creating a minimum capital requirement, imposing a new examination standard for banks' assets, and implementing a risk-based insurance scheme.

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Paper provided by University of Minnesota, Department of Economics in its series Working papers with number _005.

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Handle: RePEc:wop:minnec:_005

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Article
- Todd Kaplan, 2006. "Why banks should keep secrets," Economic Theory, Springer, vol. 27(2), pages 341-357, January. [Downloadable!] (restricted)
Paper
- Kaplan, T.R., 2000. "Why Banks Should Keep Secrets," Discussion Papers 00/14, University of Exeter, School of Business and Economics.

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-97, November. [Downloadable!] (restricted)
Other versions:
- Roger B. Myerson, 1981. "Mechanism Design by an Informed Principal," Discussion Papers 481, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Ted Temzelides & Bernandino Adao, 1995. "Beliefs, Competition, and Bank Runs," Finance 9511001, EconWPA. [Downloadable!]
Other versions:
- Bernadino Adao & Theodosios Temzelides, 1995. "Beliefs, competition, and bank runs," Working Papers 95-26, Federal Reserve Bank of Philadelphia.
- Bernardino Adao & Ted Temzelides, 1998. "Sequential Equilibrium and Competition in a Diamond-Dybvig Banking Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 859-877, October. [Downloadable!] (restricted)
S. Rao Aiyagari, 1988. "Banking panics, information, and rational expectations equilibrium," Working Papers 320, Federal Reserve Bank of Minneapolis. [Downloadable!]
Gorton, Gary, 1985. "Bank suspension of convertibility," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 177-193, March. [Downloadable!] (restricted)
V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June. [Downloadable!] (restricted)
Other versions:
- Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23. [Downloadable!]
Neil Wallace, 1988. "Another attempt to explain an illiquid banking system: the Diamond and Dybvig model with sequential service taken seriously," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-16. [Downloadable!]
Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-61, July. [Downloadable!] (restricted)

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Frank Gigler & Thomas Hemmer, 2008. "On the welfare effects of allowing unlimited renegotiation in agency relationships," Economic Theory, Springer, vol. 37(2), pages 243-265, November. [Downloadable!] (restricted)

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