Bank transparency and market efficiency

This paper explores the impact of bank transparency on market efficiency by comparing banks that disclose supervisory capital requirements to those that remain opaque. Due to the informational content of supervisory capital requirements for the market this opacity might hinder market efficiency. The paper estimates an average 11.5% reduction in funding costs for transparent versus opaque banks. However, there is some heterogeneity in those effects. Transparency helps the market to sort across safer and riskier banks. Conditional on disclosure, the safest quartile of banks, those with a CET1 P2R lower than 1.5% of risk-weighted assets, benefits in average from 31.1% lower funding costs. The paper concludes that supervisory transparency is beneficial, supporting the view that supervisory transparency enhances market discipline by allowing markets to better evaluate and price the risk associated with each bank.