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Transparency and bank runs

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  • Parlatore, Cecilia

Abstract

In a banking model with imperfect information, I find that more precise information increases the economy’s vulnerability to bank runs. For low information quality, depositors cannot distinguish bad from good states based on their information and, absent liquidity shocks, have no incentives to withdraw early. As information quality increases and signals become more informative, depositors’ incentives to withdraw strengthen and run-proof contracts become costlier in risk-sharing terms: to prevent runs, the bank must offer less to early withdrawers. When information quality is high enough, the bank would rather forgo return and hold excess liquidity than choose a run-proof deposit contract.

Suggested Citation

  • Parlatore, Cecilia, 2024. "Transparency and bank runs," Journal of Financial Intermediation, Elsevier, vol. 60(C).
  • Handle: RePEc:eee:jfinin:v:60:y:2024:i:c:s1042957324000482
    DOI: 10.1016/j.jfi.2024.101120
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    More about this item

    Keywords

    Bank runs; Transparency; Information; Fragility;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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