Informational Easing: Improving Credit Conditions through the Release of Information

[...]This paper addresses how central banks can resuscitatelending chains by providing information that reduces uncertainty about participants along the chains. This action has been taken before: the Bank Holiday of 1933, declared byPresident Franklin Delano Roosevelt, resolved uncertaintyabout the health of individual banks by using bank inspectionsto publicly identify which banks were sound. This eventrestored the flow of funds to the banking sector and facilitatedbank lending. During the 2007-09 financial crisis, the FederalReserve used “stress tests” to measure and report on the healthof large banks in the U.S. banking system and to identify thosebanks that required shoring up through capital injections.[...]