Liquidity Creation without Bank Panics and Deposit Insurance
This paper develops a panic-free bank system in an OLG model. A bank issues both demand deposits and time deposits (or bank stocks) so that the maturity-matching constraint is satisfied. The agents who cannot participate in capital markets put their savings in demand deposits; others favour marketable time deposits. Everyone receives a liquid saving asset, and the bank boosts the liquidity of the economy, even though it operates under maturity matching. The costs of stabilization are high if the bank's operating costs are substantial or if there are only a few agents who will participate in the capital markets without subsidies.
Volume (Year): 166 (2010)
Issue (Month): 3 (September)
|Contact details of provider:|| Web page: https://www.mohr.de/jite|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
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.:
- Franklin Allen & Douglas Gale, 1976.
"Optimal Financial Crises,"
Center for Financial Institutions Working Papers
97-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Douglas W. Diamond, "undated".
"Liquidity, Banks and Markets,"
CRSP working papers
326, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- S. Bhattacharya & P. Fulghieri & R. Rovelli, 1997.
"Financial Intermediation Versus Stock Markets in a Dynamic Intertemporal Model,"
300, Dipartimento Scienze Economiche, Universita' di Bologna.
- Sudipto Bhattacharya & Paolo Fulghieri & Riccardo Rovelli, 1998. "Financial Intermediation Versus Stock Markets in a Dynamic Intertemporal Model," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(1), pages 291-291, March.
- Chen, Yehning & Hasan, Iftekhar, 2006. "The transparency of the banking system and the efficiency of information-based bank runs," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 307-331, July.
- Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
When requesting a correction, please mention this item's handle: RePEc:mhr:jinste:urn:sici:0932-4569(201009)166:3_521:lcwbpa_2.0.tx_2-y. 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: (Thomas Wolpert)
If references are entirely missing, you can add them using this form.