Could making banks hold only liquid assets induce bank runs?
Restrictions placed on bank portfolios are analyzed in a banking model designed to capture the role of checking accounts in facilitating transactions. Forcing banks to hold only liquid assets creates the incentive for liquidity-based runs. Even when a run does not occur, welfare is reduced as a result of overinvestment in the liquid asset.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Neil Wallace, 1996. "Narrow banking meets the Diamond-Dybvig model," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-13.
- Edward J. Green, 1995.
"Implementing Efficient Allocations in a Model of Financial Intermediation,"
- Green, Edward J. & Lin, Ping, 2003. "Implementing efficient allocations in a model of financial intermediation," Journal of Economic Theory, Elsevier, vol. 109(1), pages 1-23, March.
- Edward J. Green & Ping Lin, 1996. "Implementing efficient allocations in a model of financial intermediation," Working Papers 576, Federal Reserve Bank of Minneapolis.
- Peck, James & Shell, Karl, 2001.
"Equilibrium Bank Runs,"
01-10r, Cornell University, Center for Analytic Economics.
- Champ, B. & Smith, B.D., 1991.
"Currency Elasticity and Banking Panics: theory and Evidence,"
University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers
9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
- Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-64, November.
- Champ, B. & Snith, B.D. & Williamson, D.S., 1991. "Currency Elasticity and Banking Panics: Theory and Evidence," RCER Working Papers 292, University of Rochester - Center for Economic Research (RCER).
- Douglas W. Diamond & Raghuram G. Rajan, 1999.
"Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking,"
NBER Working Papers
7430, National Bureau of Economic Research, Inc.
- Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
- Douglas W. Diamond & Raghuram G. Rajan, 1998. "Liquidity risk, liquidity creation and financial fragility: a theory of banking," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
- Douglas W. Diamond & Raghuram G. Rajan, . "Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking," CRSP working papers 476, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Ennis, Huberto M. & Keister, Todd, 2003.
"Economic growth, liquidity, and bank runs,"
Journal of Economic Theory,
Elsevier, vol. 109(2), pages 220-245, April.
- 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.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Joseph G. Haubrich & Robert G. King, 1984.
"Banking and Insurance,"
NBER Working Papers
1312, National Bureau of Economic Research, Inc.
- Joseph Haubrich, .
"Optimal Financial Structure in Exchange Economies,"
Rodney L. White Center for Financial Research Working Papers
18-84, Wharton School Rodney L. White Center for Financial Research.
- Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, March.
- Neil Wallace, 1990. "A banking model in which partial suspension is best," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 11-23.
When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:57:y:2010:i:4:p:420-427. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.