Sunspot bank runs in competitive versus monopolistic banking systems
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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- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Franklin Allen & Douglas Gale, 2004.
"Competition and financial stability,"
Federal Reserve Bank of Cleveland, pages 453-486.
- 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.
- Boyd, John H & De Nicolo, Gianni & Smith, Bruce D, 2004.
"Crises in Competitive versus Monopolistic Banking Systems,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 36(3), pages 487-506, June.
- 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.
- Bruce D. Smith & Gianni De NicolÃ³ & John H. Boyd, 2003. "Crisis in Competitive Versus Monopolistic Banking Systems," IMF Working Papers 03/188, International Monetary Fund.
- 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.
- 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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