Information Disclosure and Financial Stability

Abstract

This paper studies how disclosure of bank-specific information can mitigate systemic bank runs by reallocating systemic risk across different banks. We find that disclosure of information about vulnerability to systemic risk loads more of the constant aggregate systemic risk to less vulnerable ones. This improves the survival probability of all banks. Thus, the optimal disclosure should maximize informational heterogeneity there, provided that all banks are run simultaneously if inevitable. However, disclosure of other bank-specific information does not generate heterogeneity in such vulnerability, making the reallocation of systemic risk and thus the disclosure unbeneficial.