We study whether regulators should reveal the models they use to stress test banks. In our setting, revealing leads to gaming, but not revealing can induce banks to under-invest in socially desirable assets for fear of failing the test. We show that although the regulator can solve this...

We study an optimal disclosure policy of a regulator that has information about banks (e.g., from conducting stress tests). In our model, disclosure can destroy risk-sharing opportunities for banks (the Hirshleifer effect). Yet, in some cases, some level of disclosure is necessary for risk...

Conventional wisdom holds that the models used to stress test banks should be kept secret to prevent gaming. We show instead that secrecy can be suboptimal, because although it deters gaming, it may also deter socially desirable investment. When the regulator can choose the minimum standard for...