Opacity has a negative effect on bank lending, and this effect is more pronounced for banks that are more reliant on wholesale funds.

What is bank opacity?

In the model, bank opacity is costly because it encourages banks to take on too much risk. But opacity also reduces the incidence of bank runs (for a given level of risk taking). Banks choose to be inefficiently opaque if the composition of their asset holdings is proprietary information.

What increases bank lending?

Cutting Interest Rates

Lower interest rates makes borrowing cheaper. This should increase the demand for bank lending as firms and consumers are more willing to borrow rather than save. In normal circumstances, a cut in interest rates probably would increase bank lending.