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Tamas Vadasz

is a final year Finance PhD candidate at Warwick Business School, his main research field is banking theory. His current works are related to financial stability and regulation in the banking sector, systemic risk using network analytics, and policy issues regarding market structure and competition in retail banking. Tamas has received his MSc in Finance from Corvinus University of Budapest, prior to returning to the academia he worked as a consultant in the EMEA banking sector.

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Kebin Ma, Tamás Vadász: Bank Signalling, Risk of Runs, and the Informational Impacts of Regulations

Banks can take costly actions (such as higher capitalization, liquidity holding, and advanced risk management) to fend off runs. While such actions directly affect bank risks, they also carry informational content as signals of the banks' fundamentals. A separating equilibrium due to such signaling, however, involves two types of inefficiency: the high type chooses excessively costly signals, whereas the low type is vulnerable to runs. This provides a novel rationale for financial regulations: by restricting banks’ actions, regulators can maintain a pooling equilibrium where the cross-subsidy among types promotes financial stability. We build a theoretical model to illustrate the point, and also obtain supporting evidence from the US capital and liquidity regulations.

Last modified: 2018.11.30.