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On the fundamental reasons for bank fragility

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Author Info

  • Huberto M. Ennis
  • Todd Keister

Abstract

A substantial body of literature has now developed as a result of efforts to identify the fundamental reasons for the fragility of financial intermediaries in the Diamond-Dybvig theory of banking. Many of these articles focus on the interaction between sequential service and uncertainty about the aggregate need for liquidity in the economy. The articles in this literature are inevitably technical and focus somewhat narrowly on the implications of specific assumptions. Here, we provide a more accessible discussion of the main ideas and findings in this literature. Our discussion can be used as an introduction to the more technical articles or as an organizing framework for understanding the relative contribution of the main articles in this literature.

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File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2010/q1/pdf/ennis.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2010)
Issue (Month): 1Q ()
Pages: 33-58

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Handle: RePEc:fip:fedreq:y:2010:i:1q:p:33-58:n:v.96no.1

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Related research

Keywords: Monetary policy ; Inflation (Finance) ; Financial institutions;

References

References listed on IDEAS
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  1. Todd Keister & Huberto M. Ennis, 2004. "Bank Runs and Investment Decisions Revisited," 2004 Meeting Papers 180, Society for Economic Dynamics.
  2. Todd Keister & Huberto M. Ennis, 2008. "Run Equilibria in a Model of Financial Intermediation," 2008 Meeting Papers 513, Society for Economic Dynamics.
  3. Peck, James & Shell, Karl, 2010. "Could making banks hold only liquid assets induce bank runs?," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 420-427, May.
  4. Peck, James & Shell, Karl, 2001. "Equilibrium Bank Runs," Working Papers 01-10r, Cornell University, Center for Analytic Economics.
  5. Cooper, Russell & Ross, Thomas W., 1998. "Bank runs: Liquidity costs and investment distortions," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 27-38, February.
  6. Green, Edward J. & Lin, Ping, 2003. "Implementing efficient allocations in a model of financial intermediation," Journal of Economic Theory, Elsevier, vol. 109(1), pages 1-23, March.
  7. Huberto M. Ennis & Todd Keister, 2007. "Bank runs and institutions : the perils of intervention," Working Paper 07-02, Federal Reserve Bank of Richmond.
  8. Andolfatto, David & Nosal, Ed, 2008. "Bank incentives, contract design and bank runs," Journal of Economic Theory, Elsevier, vol. 142(1), pages 28-47, September.
  9. David Andolfatto & Ed Nosal & Neil Wallace, 2006. "The role of independence in the Green-Lin Diamond-Dybvig model," Working Paper 0615, Federal Reserve Bank of Cleveland.
  10. Ennis, Huberto M. & Keister, Todd, 2009. "Run equilibria in the Green-Lin model of financial intermediation," Journal of Economic Theory, Elsevier, vol. 144(5), pages 1996-2020, September.
  11. Ennis, Huberto M. & Keister, Todd, 2010. "Banking panics and policy responses," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 404-419, May.
  12. Postlewaite, Andrew & Vives, Xavier, 1987. "Bank Runs as an Equilibrium Phenomenon," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 485-91, June.
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Citations

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Cited by:
  1. Nicola Cetorelli & Benjamin H. Mandel & Lindsay Mollineaux, 2012. "The evolution of banks and financial intermediation: framing the analysis," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-12.
  2. Cavalcanti, Ricardo & Monteiro, Paulo Klinger, 2011. "Enriching Information to Prevent Bank Runs," Economics Working Papers (Ensaios Economicos da EPGE) 721, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil).
  3. Markus Kinateder & Hubert Janos Kiss, 2013. "Sequential decisions in the Diamond-Dybvig banking model," IEHAS Discussion Papers 1345, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  4. Lazopoulos, Ioannis, 2013. "Liquidity uncertainty and intermediation," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 403-414.

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