Journal of Financial Services Research

, Volume 41, Issue 1–2, pp 37–49 | Cite as

The Impact of Pillar 3 Disclosure Requirements on Bank Safety

  • Jukka VauhkonenEmail author


We consider the impact of a mandatory information disclosure on bank safety in a spatial model of banking competition, in which a bank’s probability of success depends on the quality of its risk measurement and management systems. Under Basel capital requirements, this quality is at least partially disclosed to market participants by the Pillar 3 disclosures. We show that the regulator can improve the safety of the banking system by tightening the disclosure requirements. Furthermore, the stricter the disclosure requirements are the bigger is a positive impact of an increase in capital requirements on bank safety.


Basel II Capital requirements Pillar 3 Information disclosure Market discipline 

JEL classification

D43 D82 G14 G21 G28 



I would like to thank Esa Jokivuolle, Alistair Milne, Jouko Vilmunen, Matti Virén, seminar participants at the Bank of Finland, and especially Tuomas Takalo and an anonymous referee for their very helpful comments and suggestions. All the remaining errors are mine.


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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Bank of Finland, Snellmaninaukio, HelsinkiHelsinkiFinland

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