Friday , January 24 2020
Home / Amol Agrawal: Mostly Economics / How does information management and control affect bank stability: Evidence from FDR’s Bank Holiday

How does information management and control affect bank stability: Evidence from FDR’s Bank Holiday

Summary:
Haelim Anderson and Adam Copeland in this NY Fed paper: How does information management and control affect bank stability? Following a national bank holiday in 1933, New York state bank regulators suspended the publication of balance sheets of state-charter banks for two years, whereas the national-charter bank regulator did not. We use this divergence in policies to examine how the suspension of bank-specific information affected depositors. We find that state-charter banks experienced significantly less deposit outflows than national-charter banks in 1933. However, the behavior of bank deposits across both types of banks converged in 1934 after the introduction of federal deposit insurance. Interesting. One would imagine that deposits flows would be higher for more transparent

Topics:
Amol Agrawal considers the following as important: , , ,

This could be interesting, too:

Amol Agrawal writes Robert C. Merton and the Science of Finance

Amol Agrawal writes What Happens When Economics Doesn’t Reflect the Real World?

Amol Agrawal writes Central bank group to assess potential cases for central bank digital currencies

Amol Agrawal writes Seigniorage through periodic recoinage: When the validity of money was restricted in time

Haelim Anderson and Adam Copeland in this NY Fed paper:

How does information management and control affect bank stability? Following a national bank holiday in 1933, New York state bank regulators suspended the publication of balance sheets of state-charter banks for two years, whereas the national-charter bank regulator did not.

We use this divergence in policies to examine how the suspension of bank-specific information affected depositors.

We find that state-charter banks experienced significantly less deposit outflows than national-charter banks in 1933. However, the behavior of bank deposits across both types of banks converged in 1934 after the introduction of federal deposit insurance.

Interesting. One would imagine that deposits flows would be higher for more transparent banks but opposite is the case.

Implications? Mindful of too much transparency in times of crisis..

Our study has important implications for policy today. Following the financial crisis of 2007-09, policymakers have attempted to promote the market discipline of financial institutions by enhancing public disclosure, with the goal of improving financial stability. Our work highlights, however, that after implementing rules requiring greater public disclosure during normal times, regulators should bear in the mind the value of suppressing information about individual institutions in times of crisis.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

Leave a Reply

Your email address will not be published. Required fields are marked *