Information Acquisition and Regulatory Disclosure

This paper analyzes the optimal disclosure decision of a regulatory authority (RA) if creditors can acquire bank-specific information about the bank they are invested in. Withholding information can be beneficial to the RA if uninformed creditors decide to roll over their claims. If the RA can commit to a disclosure policy, she sets an optimal disclosure threshold that trades off the benefits from fewer informed creditors with the costs from disclosing information in states of the economy in which non-disclosure would prevent uninformed creditors from withdrawing. If commitment is not credible, creditors, anticipating that the RA will withhold information in more states of the economy once they made their information acquisition decision, have higher incentives to acquire information. The RA's commitment problem leads to an ex-ante inefficient disclosure policy.