Optimal Reporting Systems in Bank Runs
Zhang, Gaoqing, Zheng, Ronghuo
The Accounting Review · 2024 · Volume 99 · Issue 2
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.
Keywords
reporting systems, banks, bank runs, financial stability
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