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Asset Transfers and Self-Fulfilling Runs

Author

Listed:
  • Jonathan Payne

    (Princeton University)

  • Joshua Weiss

    (New York University)

Abstract

We introduce a new mechanism that eliminates self-fulfilling runs on a Diamond Dybvig intermediary. If a depositor wants to end their relationship with the intermediary early, they can withdraw goods or take ownership of unliquidated assets from the intermediary's balance sheet. We interpret this mechanism as a repo contract or a bankruptcy plan. What frictions prevent intermediaries from transferring assets to depositors? High transaction costs and within-intermediary idiosyncratic return risk. Our results are robust to the introduction of an asset market with adverse selection.

Suggested Citation

  • Jonathan Payne & Joshua Weiss, 2020. "Asset Transfers and Self-Fulfilling Runs," Working Papers 2020-42, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2020-42
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    More about this item

    Keywords

    self-fulfilling runs; asset transfer;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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