Working Paper

Stress tests and information disclosure

Abstract: Superseded by Working Paper 15-10. We study an optimal disclosure policy of a regulator who has information about banks? ability to overcome future liquidity shocks. We focus on the following trade-off: Disclosing some information may be necessary to prevent a market breakdown, but disclosing too much information destroys risk-sharing opportunities (Hirshleifer effect). We find that during normal times, no disclosure is optimal, but during bad times, partial disclosure is optimal. We characterize the optimal form of this partial disclosure. We also relate our results to the debate on the disclosure of stress test results.

Keywords: Financial crises; Financial stability;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2013

Number: 13-26

Pages: 57 pages

Note: Superseded by WP 17-28