This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Optimal Reserves and Short Term Interest Rates in a Model of Bank Runs

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Geethanjali Selvaretnam ()

Additional information is available for the following registered author(s):

Abstract

Banks can fail because of bad economic fundamentals, and/or general panic withdrawals by depositors who feel the bank does not have sufficient reserves to meet the demand. This paper attempts to find the optimal reserve level and early returns the banks should decide on. If the reserve policy of the bank is transparent, it is found that more reserves have to be put aside over and above the real need, and this inefficiency increases with the proportion of impatient agents. It is also found that the optimal early return is lower than the first-best. The model recommends that when reserve policy is transparent there is no need for regulation. However, if reserve policy is not transparent, the model recommends regulation for both reserves and early returns. This is because of the moral hazard problem, the banks would keep lower reserves and offer higher early returns than what maximises depositor welfare.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.essex.ac.uk/economics/discussion-papers/papers-text/dp605.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 605.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 15 Dec 2005
Date of revision:
Handle: RePEc:esx:essedp:605

Contact details of provider:
Postal: Wivenhoe Park, COLCHESTER. CO4 3SQ
Phone: +44-1206-872728
Fax: +44-1206-872724
Web page: http://www.essex.ac.uk/economics/
More information through EDIRC

Order Information:
Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
Email:
Web: http://www.essex.ac.uk/economics/discussion-papers/papers-request.shtm

For technical questions regarding this item, or to correct its listing, contact: (R. E. Bailey).

Related research
Keywords:

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bougheas, Spiros, 1999. "Contagious bank runs," International Review of Economics & Finance, Elsevier, vol. 8(2), pages 131-146, June. [Downloadable!] (restricted)
  2. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
    Other versions:
  3. Enrica Detragiache & Asli Demirgüç-Kunt, 1997. "The Determinants of Banking Crises - Evidence from Developing and Developed Countries," IMF Working Papers 97/106, International Monetary Fund.
  4. Clouse, James A. & Dow, James Jr., 2002. "A computational model of banks' optimal reserve management policy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1787-1814, September. [Downloadable!] (restricted)
  5. Loewy, Michael B., 1998. "Information-Based Bank Runs in a Monetary Economy," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 681-702, October. [Downloadable!] (restricted)
  6. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, UCLA Department of Economics. [Downloadable!]
    Other versions:
  7. Alonso, Irasema, 1996. "On avoiding bank runs," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 73-87, February. [Downloadable!] (restricted)
  8. Gorton, Gary, 1988. "Banking Panics and Business Cycles," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 751-81, December. [Downloadable!] (restricted)
  9. Ringbom, Staffan & Shy, Oz & Stenbacka, Rune, 2004. "Optimal liquidity management and bail-out policy in the banking industry," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1319-1335, June. [Downloadable!] (restricted)
  10. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September. [Downloadable!] (restricted)
    Other versions:
  11. V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  12. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June. [Downloadable!] (restricted)
  13. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 745-70, November.
    Other versions:
  14. Cothren, Richard, 1987. "Asymmetric Information and Optimal Bank Reserves," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 68-77, February. [Downloadable!] (restricted)
  15. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23. [Downloadable!]
    Other versions:
  16. 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. [Downloadable!] (restricted)
  17. Antonio E. Bernardo & Ivo Welch, 2004. "Liquidity and Financial Market Runs," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 135-158, February. [Downloadable!] (restricted)
    Other versions:
  18. James Peck & Karl Shell, 2003. "Equilibrium Bank Runs," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 103-123, February. [Downloadable!] (restricted)
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? Authors can create their own profile with links to their works on the RePEc Author Service.

This page was last updated on 2008-9-16.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.