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Sunspot bank runs in competitive versus monopolistic banking systems

  • Matsuoka, Tarishi

This paper extends the Diamond and Dybvig (1983) model to compare two banking economies: one with a competitive banking system and another with a monopolistic one. It is shown that a competitive banking system is more fragile than a monopolistic one in the sense that the parameter set stipulating that a bank run equilibrium exists in the competitive banking system dominates the set in the monopolistic one.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176512005927
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 2 ()
Pages: 247-249

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:247-249
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. John H. Boyd & Gianni De Nicoló & Bruce D. Smith, 2004. "Crises in competitive versus monopolistic banking systems," Proceedings, Federal Reserve Bank of Cleveland, pages 487-509.
  2. 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.
  3. Franklin Allen & Douglas Gale, 2004. "Competition and financial stability," Proceedings, Federal Reserve Bank of Cleveland, pages 453-486.
  4. John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
  5. Neil Wallace, 1988. "Another attempt to explain an illiquid banking system: the Diamond and Dybvig model with sequential service taken seriously," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-16.
  6. 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.
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