N°24-41: The Transparency Paradox: Mandated Compensation Disclosure and Bank Opacity

How does pay transparency affect bank opacity? We investigate this question by exploiting the introduction of pay transparency laws across nine U.S. states, utilizing data at the job posting, individual, and bank levels. We document that following these mandates: (1) the inclusion of salary information in job postings increases; (2) banks experience higher employee turnover, particularly among loan officers; (3) banks respond to these departures by raising their employee compensation. The loss of experienced personnel and the subsequent rise in labor costs precede increased bank risk-taking, deteriorating loan performance, and greater dispersion in loan loss provisioning.