Market Discipline, Public Disclosure and Financial Stability
Inadequate disclosure by commercial banks has been cited as a contributing factor to the financial crisis. Banks did not report enough information about the assets they were holding or the risks that they were exposed to, and inadequate disclosure meant that investors were less able to judge risks to a bank’s solvency than bank insiders, such as managers. Investors did not demand sufficient disclosure prior to the crisis. Possible reasons for this include risk illusion, or expectations that governments would be willing and able to bail out failing banks.
KeywordsCredit Risk Credit Rating Financial Stability Capital Ratio Public Disclosure
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