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Maturity Risks and Bank Runs

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Listed:
  • Jihene Arfaoui
  • Harald Uhlig

Abstract

Inspired by the Silicon Valley Bank run and building on Diamond- Dybvig (1993), we develop a model in which asset price fluctuations can trigger bank runs. Liquidation amounts to selling assets at their market price. Depositors can buy and hold the assets after paying an idiosyncratic cost. We characterize the equilibria. We introduce a withdrawal pressure function to distinguish between fundamental runs, driven by market price declines, and self-enforcing runs triggered by depositor panic. Deposit insurance can prevent self-enforcing runs but incurs losses during fundamental runs. Regulatory measures ensuring price resilience reduce run risks, but at the expense of depositor welfare.

Suggested Citation

  • Jihene Arfaoui & Harald Uhlig, 2025. "Maturity Risks and Bank Runs," NBER Working Papers 33955, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33955
    Note: AP EFG IFM ME
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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