We study the optimal precision of public information disclosures about banksíassets quality. In our model the precision of information a§ects banksí cost of raising funding and asset proÖle riskiness. In an imperfectly competitive banking sector, banksístability and social surplus are...

We study a competitive banking sector in which banks choose the level of risk of their asset portfolios and, upon the public disclosure of stress test results, raise funding by promising investors a repayment. We show that competition forces banks to choose risky assets so as to promise...