PImTEUR EN DERNIER RESSORT ET SOLIDARITE DE PLACE
In the Diamond-Dybvig (1983) model, the lender of last resort (LLR hereafter) can prevent bank runs if it precommits to bear the social loss due to the panic. This result contradicts the Bagehot principle. When a run on a bank is contagious to the other banks, banks face a problem of coordination because they must haggle the sharing of the social loss generated by the panic. This problem can be solved by an independant arbitrator who implements the Nash solution. We interpret this arbitrator as a LLR in its function of manager of a liquidity crisis. The model illustrates the thesis developed by Wicker (2000).
Volume (Year): (2003)
Issue (Month): 45 ()
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