Run-proof banking without suspension or deposit insurance
Article Abstract:
A demand deposit arrangement with state-contingent deposit payments and a priority-of-claims provision on final date resources is best for a banking model with asymmetric data among depositors and multiple sources of aggregate risk. Under the arrangement, panics and information-based runs are avoided since intermediaries infer the realization of aggregate risk and of a privately observed signal on the result of the risky technology from depositors' withdrawal options. It was shown that, to obtain efficient, run-proof banking, suspension provisions nor deposit insurance are needed.
Publication Name: Journal of Monetary Economics
Subject: Economics
ISSN: 0304-3932
Year: 1996
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Evolution, coordination, and banking panics
Article Abstract:
A model based on a revised version of Diamond and Dybzig's (1983) model of suspension of convertibility was created to evaluate banking panic in an environment with multiple equilibria. Data from the National Banking Era before the Federal Reserve System was initiated served as references. Results show that the likelihood of observing banking panic becomes greater as the size of banks decreases in cases where there are several banks. Negative influences which spread through local interaction causes bank runs in banks of close proximity.
Publication Name: Journal of Monetary Economics
Subject: Economics
ISSN: 0304-3932
Year: 1997
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Bank runs: liquidity costs and investment distortions
Article Abstract:
An extension of the Diamond-Dybvig framework was undertaken to analyze the effects of bank runs and to forecast banks' reactions to the possibility of runs. The framework revealed that banks also have the option to offer contracts that might possibly lead to runs in order to attain more profitable investment returns. The approach signified the presence of intermediaries' true liquidity role in offering new conditions for bank runs.
Publication Name: Journal of Monetary Economics
Subject: Economics
ISSN: 0304-3932
Year: 1998
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