We examine whether stress tests distort banks' risk-taking decisions. We study a model in which a regulator may choose to rescue banks in the event of concurrent bank failures. Our analysis reveals a novel coordination role of stress tests. Disclosure of stress-test results informs banks of the...

We examine whether stress tests distort banks' risk‐taking decisions. We study a model in which a regulator may choose to rescue banks in the event of concurrent bank failures. Our analysis reveals a novel coordination role of stress tests. Disclosure of stress‐test results informs banks of...

This paper examines banks' accounting choices between fair-value and historical-cost accounting when reported accounting information is used for capital requirement regulation. In choosing fair-value relative to historical-cost, banks must consider potential benefits of additional lending in...

We study the implications of accounting information quality on banks' risk-taking behavior. We show that the accounting information precision has a non-monotonic effect on banks' risk-taking decisions. Surprisingly, when information precision is low, an improvement in precision actually induces...

We present a theory of bank disclosure in which banks face both adverse selection and bank run risk. In our model, banks disclose information to reduce adverse selection in credit markets, but information disclosure can also trigger inefficient bank runs. We show that the level of disclosure...