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Models of Banking Instability: A Partial Review of the Literature

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  • Dowd, Kevin

Abstract

This paper critically examines the theoretical literature on banking instability that has followed Diamond and Dybvig (1983). It explores the extent to which it (1) explains banking instability within a theoretical context in which financial intermediaries improve on unintermediated markets, and (2) justifies government involvement in the financial intermediation industry. It suggests that the literature has yet to provide a satisfactory theoretical basis for banking instability as such since the intermediaries which arise from it are peculiar mutual funds that bear little resemblance to real-world banks. In addition, the paper challenges the widespread belief that this literature provides a sound foundation for government involvement in the industry. It suggests that arguments for government intervention are open to objection on various grounds, the most important one being that they are inconsistent with the existence of properly motivated financial intermediation in these models. Copyright 1992 by Blackwell Publishers Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

Volume (Year): 6 (1992)
Issue (Month): 2 ()
Pages: 107-32

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Handle: RePEc:bla:jecsur:v:6:y:1992:i:2:p:107-32

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0950-0804

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  1. De Pablo, cuasimonedas y Hayek: una aclaracion
    by Nicolas Cachanosky in Punto de Vista Economico on 2012-05-21 03:10:24
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Cited by:
  1. Kornert, Jan, 2003. "The Barings crises of 1890 and 1995: causes, courses, consequences and the danger of domino effects," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(3), pages 187-209, July.
  2. Doris Neu Berger, 1998. "Industrial Organization of Banking: A Review," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(1), pages 97-118.
  3. VanHoose, David, 2011. "Systemic Risk and Macroprudential Bank Regulation: A Critical Appraisal," Journal of Financial Transformation, Capco Institute, vol. 33, pages 45-60.
  4. Loewy, Michael B., 1998. "Information-Based Bank Runs in a Monetary Economy," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 681-702, October.
  5. Bryan Fitz-Gibbon & Marianne Gizycki, 2001. "A History of Last-resort Lending and Other Support for Troubled Financial Institutions in Australia," RBA Research Discussion Papers rdp2001-07, Reserve Bank of Australia.
  6. Semenova, M., 2011. "Bank Runs and Costly Information," Journal of the New Economic Association, New Economic Association, issue 10, pages 31-52.
  7. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 257-280.
  8. Xavier Freixas & Curzio Giannini & Glenn Hoggarth & Farouk Soussa, 2000. "Lender of Last Resort: What Have We Learned Since Bagehot?," Journal of Financial Services Research, Springer, vol. 18(1), pages 63-84, October.
  9. Kevin Dowd, 2000. "Bank Capital Adequacy versus Deposit Insurance," Journal of Financial Services Research, Springer, vol. 17(1), pages 7-15, February.

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