Too-Big-To-Lend? Capital Adequacy and Intermediation

We extend the literature explaining the credit channel of monetary policy by showing that bank transparency has a significant effect on liquidity provision for the real sector as well as on rollover risk for banks. We do so by application of a quasi-natural experiment related to the Federal Reserve Rule implemented post crisis. Reduction in information asymmetry about banks leads to multi-equilibria on both credit and deposit markets conditional on regulatory-induced vs. voluntary disclosure. Mandatory disclosure contributes to a contraction of traditional banking business. Voluntary disclosing banks partially offset tightening by growth, however, with greater risk for the system.