Mandatory Disclosure and Financial Contagion / Fernando Alvarez, Gadi Barlevy.

Format:

Book

Author/Creator:

Alvarez, Fernando.

Contributor:

National Bureau of Economic Research.

Barlevy, Gadi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21328.

NBER working paper series no. w21328

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

This paper explores whether mandatory disclosure of bank balance sheet information can improve welfare. In our benchmark model, mandatory disclosure can raise welfare only when markets are frozen, i.e. when investors refuse to fund banks in the absence of balance sheet information. Even then, intervention is only warranted if there is sufficient contagion across banks, in a sense we make precise within our model. In the same benchmark model, if in the absence of balance sheet information investors would fund banks, mandatory disclosure cannot raise welfare and it will be desirable to forbid banks to disclose their financial positions. When we modify the model to allow banks to engage in moral hazard, mandatory disclosure can increase welfare in normal times. But the case for intervention still hinges on there being sufficient contagion. Finally, we argue disclosure represents a substitute to other financial reforms rather than complement them as some have argued.

Notes:

Print version record

July 2015.