Enhancing Bank Transparency: A Re-assessment |
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Authors: | Ari Hyytinen and Tuomas Takalo |
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Affiliation: | (1) The Research Institute of the Finnish Economy (ETLA), Lönnrotinkatu 4B, FIN-00120 cHelsinki, Finland;(2) Research Department, Bank of Finland, P.O. Box 160, FIN-00101 Helsinki, Finland |
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Abstract: | Transparency regulation aims at reducing financial fragility by strengthening market discipline. There are, however, two elementary properties of banking that may render such regulation inefficient at best and detrimental at worst. First, an extensive financial safety net may eliminate the disciplinary effect of transparency regulation. Second, achieving transparency is costly for banks, as it dilutes their charter values, and hence also reduces their private costs of risk-taking. We consider both the direct costs of complying with disclosure requirements and the indirect transparency costs stemming from imperfect property rights governing information and particularly infer the conditions under which transparency regulation cannot reduce financial fragility. |
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Keywords: | banking disclosure deposit insurance market discipline transparency |
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