The Relation Between Bank Resolutions and Information Environment: Evidence from the Auctions for Failed Banks by João Granja.
Abstract:
This study examines the impact of disclosure requirements on the resolution costs of failed banks. Consistent with the hypothesis that disclosure requirements mitigate information asymmetries in the auctions for failed banks, I find that, when failed banks are subject to more comprehensive disclosure requirements, regulators incur lower costs of closing a bank and retain a lower portion of the failed bank’s assets, while bidders that are geographically more distant are more likely to participate in the bidding for the failed bank. The paper provides new insights into the relation between disclosure and the reorganization of a banking system when the regulators’ preferred plan of action is to promote the acquisition of undercapitalized banks by healthy ones. The results suggest that disclosure regulation policy influences the cost of resolution of a bank and, as a result, could be an important factor in the definition of the optimal resolution strategy during a banking crisis event.
A reminder that transparency needs to be broader than open data in science and government.
In the case of bank failures, transparency lowers the cost of such failures for the public.
Some interests profit from less transparency in bank failures and other interests (like the public) profit from greater transparency.
If bank failure doesn’t sound like a current problem, consider Map of Banks Failed since 2008. (Select from Failed Banks Map (under Quick Links) to display the maps.) U.S. only. Do you know of a similar map for other countries?
Speaking of transparency, it would be interesting to track the formal, financial and social relationships of those acquiring failed bank assets.
You know, the ones that are selling for less than fair market value due to a lack of transparency.