Work

Optimal Reporting Systems in Bank Runs

Year: 2023

Type: article

Abstract: ABSTRACT We study the role of reporting systems in the context of bank runs. In our model, a bank receives an early but imprecise estimate of its investment performance, and its financial reporting system generates a report. We find that, from a financial-stability standpoint, the optimal reporting system requires full disclosure when the bank’s early estimate is below a certain threshold, but no disclosure otherwise. Importantly, such optimal reporting threshold should be tailored to the bank’s exposure to bank-run risk. In particular, the threshold is nonmonotonic and U-shaped in the bank-run risk. We also relate our results to current accounting standards and discuss their implications for policy-making and empirical research. JEL Classifications: G21; G28; M41; M48.

Source: The Accounting Review

DOI: 10.2308/tar-2021-0626

Authors: Gaoqing Zhang, Ronghuo Zheng

Institutions: University of Minnesota, Carnegie Mellon University, The University of Texas at Austin

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4387190845

FWCI: 1.659

Cites: 65

Cited by: 13

Related to: 10