Supervisors should not tell whole truth about bank health, Bundesbank economist warns

By Francesco Canepa
Reuters
Tuesday, September 1, 2015

Banking supervisors should withhold some information when they publish stress test results to prevent both bank runs and excessive risk taking by lenders, according to a paper co-authored by a Bundesbank economist.

European banking authorities are due to carry out a fresh round of stress tests next year as they try to restore investor and depositor confidence in the continent's banks after the financial crisis.

The paper, presented at a conference in Mannheim last week but yet to be published in its current form, says stress tests should be used to influence depositor behavior and warns against giving too much away.

If depositors know from the watchdog that banks are in trouble, they will withdraw their cash, threatening lenders' survival and causing the panic the supervisor is trying to avoid, the paper said.

For this reason, the authors say, the amount of information disclosed by supervisors should decrease the more vulnerable the banking sector is expected to be. ...

... For the remainder of the report:

http://www.reuters.com/article/2015/09/01/europe-banks-tests-idUSL5N1173...