Could making banks hold only liquid assets induce bank runs?
AbstractRestrictions placed on bank portfolios are analyzed in a banking model designed to capture the role of checking accounts in facilitating transactions. Forcing banks to hold only liquid assets creates the incentive for liquidity-based runs. Even when a run does not occur, welfare is reduced as a result of overinvestment in the liquid asset.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 57 (2010)
Issue (Month): 4 (May)
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Web page: http://www.elsevier.com/locate/inca/505566
Bank runs Bank stability Deposit contracts Glass-Steagall banking Mechanism design Portfolio restrictions Sunspot equilibrium;
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