Optimal Reporting Systems in Bank Runs

Gaoqing Zhang, Ronghuo Zheng

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)457-481
Number of pages25
JournalAccounting Review
Volume99
Issue number2
DOIs
StatePublished - Mar 2024
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2024 American Accounting Association. All rights reserved.

Keywords

  • bank runs
  • banks
  • financial stability
  • reporting systems

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