Opacity of Banks and Runs with Solvency
AbstractIn absence of bank risk-taking behavior, opacity is defined as the inability of depositors, speculators and central banker to disentangle default risk and asset's return from the asset's value. We show the conditions under which opacity leads to runs on a solvent bank in equilibrium and uncertainty on fundamental values of the asset. The main repercussion of the opacity is, however, on the central bank's policy response which is inefficient during a banking crisis.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 24166.
Date of creation: 2010
Date of revision:
Opacity; Bank Runs; Central Bank Intervention; Cash-in-Market Pricing.;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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