Here.
We examine the competition among and the opacity of banks subject to rollover
risk. Banks imperfectly compete for uninsured deposits and choose the opacity
of their risky investment. In a static setup, higher bank competition increases
the deposit rate, which increases withdrawal incentives due to strategic complementarity
and thus raises bank fragility. In a dynamic setup with entry, a
theory of bank opacity arises. Opacity trades off a static cost of larger withdrawals
and costly liquidation of investment with a dynamic benefit of deterring
entry and reducing future competition. We use our framework to evaluate the
regulation of competition or transparency. We find that greater competition increases
deposit rates, fragility, and transparency, while minimum transparency
regulation increases both current and future fragility and future competition.
From:
Toni Ahnert David Martinez-Miera
Bank of Canada, CEPR Carlos III, CEPR
We examine the competition among and the opacity of banks subject to rollover
risk. Banks imperfectly compete for uninsured deposits and choose the opacity
of their risky investment. In a static setup, higher bank competition increases
the deposit rate, which increases withdrawal incentives due to strategic complementarity
and thus raises bank fragility. In a dynamic setup with entry, a
theory of bank opacity arises. Opacity trades off a static cost of larger withdrawals
and costly liquidation of investment with a dynamic benefit of deterring
entry and reducing future competition. We use our framework to evaluate the
regulation of competition or transparency. We find that greater competition increases
deposit rates, fragility, and transparency, while minimum transparency
regulation increases both current and future fragility and future competition.
From:
Toni Ahnert David Martinez-Miera
Bank of Canada, CEPR Carlos III, CEPR