Preventing systemic crises through bank transparency

Banking system is known to be vulnerable to self-fulfilling crises that are caused by depositors’ coordination failure. We show that transparency regulation may prevent systemic crises by eliminating the possibility of the coordination failure. In principle, transparency regulation in our model works like the deposit insurance in the influential articles by Diamond and Dybvig (1983) and Matutes and Vives (1996), where the deposit insurance may prevent systemic confidence crises.