We propose a novel mechanism for why bank portfolios are opaque: banks main-

tain opacity to boost profits, even at depositors’ expense. We argue that banks choose

opacity to secure cheaper long-term funding while balancing insolvency and illiquidity;

and this trade-off determines the portfolio’s optimal opacity. We show that opacity re-

duces deposit rates but, by forcing depositors to rely on noisy solvency signals and act

cautiously, raises the likelihood of early withdrawals when interest rates are high. Con-

sequently, in high-rate environments, banks strategically tilt toward excessive opacity

to further cut deposit rates, at the cost of more frequent early failure.