IDEAS home Printed from
   My bibliography  Save this paper

International Risk Sharing and Bank Runs


  • Proto, Eugene

    (University of Bristol)


Banks act as maturity transformers, who take liquid deposit and invest in illiquid assets. In this classical framework, we introduce uncertainty in the asset returns. We show that banks can insure individuals against the risk of illiquidity at the cost of increasing the riskIness of their portfolios. In an open financial market, they can better diversify their portfolio and decrease its risk. In that way, they can also increase the level of insurance against the risk of illiquidity. This improves individual welfare, but the banks' short-term deposit-reserve ratio and the fragility of the financial system result higher in an open economy than in an autarchic regime. For this reason, the mechanism of deposit insurance against bank runs becomes more difficult to implement by each country's central bank.

Suggested Citation

  • Proto, Eugene, 2003. "International Risk Sharing and Bank Runs," Royal Economic Society Annual Conference 2003 170, Royal Economic Society.
  • Handle: RePEc:ecj:ac2003:170

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: no

    More about this item


    bank run; international risk sharing; fragility of financial markets; deposit insurance;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:ecj:ac2003:170. 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: (Christopher F. Baum). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.