IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v256y2025ics0165176525004185.html
   My bibliography  Save this article

Cash out or carry on: When bank runs build resilience

Author

Listed:
  • Baldwin, Kenneth
  • Alhalboni, Maryam

Abstract

We integrate liquidity risk into a first passage time solvency model to measure the joint probability of bank default. Counterintuitively, we find that the interaction between liquidity and solvency risks can, under plausible conditions, lower the overall likelihood of default. This finding is significant to the supply of credit to the real economy, as it reduces the pressure on banks to scale back risk-taking by tightening lending conditions after negative liquidity shocks. As far as we know, our combined liquidity-solvency model is the first to demonstrate this stabilizing effect.

Suggested Citation

  • Baldwin, Kenneth & Alhalboni, Maryam, 2025. "Cash out or carry on: When bank runs build resilience," Economics Letters, Elsevier, vol. 256(C).
    • Handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004185
    DOI: 10.1016/j.econlet.2025.112581
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176525004185
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2025.112581?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004185. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.