Research Discussion Papers, Bank of Finland
No 10/2000:
Enhancing Bank Transparency: A Re-assessment
Ari Hyytinen ()
and Tuomas Takalo ()
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 it 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 specify the conditions
under which transparency regulation can (and cannot) reduce financial
fragility.
Keywords: information disclosure; market discpline; bank transparency; deposit insurance; financial safety net; (follow links to similar papers)
JEL-Codes: G21; G28; (follow links to similar papers)
34 pages, August 31, 2000
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