Disclosure Regulation and Bank Stability: Evidence from Call Reports Open Access

Abstract

This study provides evidence on the economic consequences of disclosure regulation in the context of deposit markets. While mandated disclosures facilitate monitoring of banks, increasing information about banks can have a detrimental effect by increasing the likelihood of runs on individual banks. I exploit the Call Reports setting, which provides new mandatory disclosures that reveal bank health. I rely on the count of new Call Report items to test the effect of mandatory disclosures on banks’ ability to raise uninsured deposits, a significant source of funds that is prone to runs. This study shows that depositors in banks subject to new Call Report disclosures shift deposits from uninsured toward insured accounts. Further, increases in mandatory disclosures are associated with increases in deposit interest rates. This study concludes that mandatory disclosures do not help banks’ ability to raise uninsured deposits and increases the amount of deposits that rely on deposit insurance, especially to the extent the new disclosures make depositors more aware of bank risk.

Table of Contents

CONTENTS

1. Introduction ................................................................................................................................. 1

2. Background and hypothesis development .................................................................................. 7

2.1 Disclosure regulation and deposit markets............................................................................ 7

2.2 Features of banks and deposit markets and the monitoring role of depositors ..................... 8

2.3 Who holds uninsured deposits, and why? ........................................................................... 10

2.4 Institutional background - Call Reports .............................................................................. 11

2.5 Institutional background – Differences in Detail of Call Reports ....................................... 13

2.6 Hypothesis Development .................................................................................................... 13

3. Research design ........................................................................................................................ 15

3.1 Increases in Mandatory Disclosures and Access to Deposits ............................................. 15

3.2 Data and sample selection ................................................................................................... 17

3.3 Descriptive statistics ............................................................................................................ 19

3.4 Correlations ......................................................................................................................... 21

3.5 Relevance of accounting data in deposit markets. Are increases in Call Reports useful to depositors? ................................................................................................................................. 21

4. Main Results ............................................................................................................................. 22

4.1 How do deposit markets respond to new Call Report disclosures? Evidence from uninsured deposit volume .......................................................................................................................... 22

4.2 How do deposit markets respond to new Call Report disclosures? Evidence from deposit rates ........................................................................................................................................... 24

4.3 Difference-in-Difference (DiD) Analysis ........................................................................... 25

4.4 Regression Discontinuity Design (RDD) Analysis ............................................................. 27

4.5 Call Report disclosure classification ................................................................................... 29

4.6 Additional robustness tests .................................................................................................. 30

5. Conclusion ................................................................................................................................ 31

Figure 1 – Increases in Mandatory Disclosures ............................................................................ 33

Figure 2 – Regression Discontinuity Analyses ............................................................................. 34

Appendix A - Variable Definitions ............................................................................................... 35

References ..................................................................................................................................... 38

Table 1 – Sample selection ........................................................................................................... 41

Table 2 – Description of the sample [1991-2018] ........................................................................ 42

Table 3 – Correlation Matrix ........................................................................................................ 43

Table 4 – Relevance of accounting data in deposit markets over time ......................................... 44

Table 5 – Main Findings: Do bank disclosures facilitate deposits? Evidence from volume ........ 46

Table 6 – Main Findings: Do bank disclosures facilitate deposits? Evidence from deposit rates 47

Table 7 –Differences-in-differences analysis ............................................................................... 48

Table 8 – Regression Discontinuity Design (RDD) Analyses ...................................................... 49

Table 9 – Classification of Call Report items ............................................................................... 50

Table 10 – Additional Analyses: Loan Portfolio Disclosures ...................................................... 51

Table 11 – Robustness Checks ..................................................................................................... 52

About this Dissertation

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School	Laney Graduate School
Department	Business
Subfield / Discipline	Accounting
Degree	Ph.D.
Submission	Dissertation
Language	English
Research Field	Business Administration, Accounting
Keyword	financial institutions depositor discipline disclosure regulation
Committee Chair / Thesis Advisor	Prof. Grace Pownall, Emory University
Committee Members	Prof. Rohan Ganduri, Emory University Prof. Karen Ton, Emory University Prof. Gregory Waymire, Emory University Prof. Ilia Dichev, Emory University

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