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Discussion Paper Details

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Title: Bank Runs, Bank Competition and Opacity

Author(s): Toni Ahnert and David Martinez-Miera

Publication Date: June 2021

Keyword(s): bank run, Competition, competition policy, Entry, fragility, global games, opacity and transparency regulation

Programme Area(s): Financial Economics

Abstract: We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility. Therefore, perfect competition is not socially optimal. We also propose a theory of bank opacity. The cost of opacity is more withdrawals from a solvent bank, lowering bank profits. The benefit of opacity is to deter the entry of a competitor, increasing future bank profits. The excessive opacity of incumbent banks rationalizes transparency regulation.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16207

Bibliographic Reference

Ahnert, T and Martinez-Miera, D. 2021. 'Bank Runs, Bank Competition and Opacity'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16207