An Economic Inquiry Into Information Disclosure By Banking Institutions
نویسندگان
چکیده
This paper presents a model of shadow banking in which the shadow and the traditional banking systems share a symbiotic relationship. The analysis shows that competition with an opaque and fragile shadow bank can bene t the traditional bank, especially when the traditional bank faces liquidity risk stemming from collective actions by investors, such as runs. The opacity and fragility of the shadow bank help to coordinate (higher-order) beliefs and actions of individual investors, which improve the management of liquidity risk faced by the traditional bank. In the parallel banking equilibrium, the traditional bank induces the shadow bank to be both opaque and fragile by lowering its own disclosure precision.
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