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Bank Runs and Asset Price Collapses

Author

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  • Hiroki Toyoda

    (Institute of Economic Research, Kyoto University)

Abstract

To study the relationship between bank runs and asset prices, we consider a banking model that incorporates a secondary market for long-term assets. Adverse selection arises in this market because banks are better informed about the quality of their assets than other market participants. The model generates multiple equilibria. In one equilibrium, bank runs cannot occur. In another equilibrium, asset prices can be low and bank runs can occur. This can be interpreted as a financial crisis. In this framework, a liquidity requirement for banks might cause bank runs.

Suggested Citation

  • Hiroki Toyoda, 2018. "Bank Runs and Asset Price Collapses," KIER Working Papers 988, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:988
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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP988.pdf
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    References listed on IDEAS

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    1. Heider, F. & Hoerova, M. & Holthausen, C., 2009. "Liquidity Hoarding and Interbank Market Spreads : The Role of Counterparty Risk," Discussion Paper 2009-40 S, Tilburg University, Center for Economic Research.
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    More about this item

    Keywords

    Bank runs; Asset market; Adverse selection;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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