Bank Runs as an Equilibrium Phenomenon

Postlewaite, Andrew; Vives, Xavier

doi:10.1086/261468

Cited by 264 publications

(105 citation statements)

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“…In Section 5, we demonstrate why the 6 See also Diamond (1997) andFecht (2004). 7 See also Allen and Gale (1998) (Jacklin and Bhattacharya, 1988), models with positive probability of bank runs (Postlewaite and Vives, 1987;Chari and Jagannathan, 1988;Allen and Gale, 1998;Rochet and Vives, 2004;Goldstein and Pauzner, 2005), models with interbank contagion (Allen and Gale, 2000;Dasgupta, 2004;Uhlig, 2010), runs in repurchase agreements (Martin et al, 2014), and dynamic runs (He and Xiong, 2012). provision of public liquidity by the government is superior to the private case.…”

Section: Introductionmentioning

confidence: 93%

Outside Liquidity, Rollover Risk, and Government Bonds

Luck

Schempp

2014

SSRN Journal

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This paper discusses whether financial intermediaries can optimally provide liquidity, or whether the government has a role in creating liquidity by supplying government securities. We discuss a model in which intermediaries optimally manage liquidity with outside rather than inside liquidity: instead of holding liquid real assets that can be used at will, banks sell claims on long-term projects to investors. While increasing efficiency, liquidity management with private outside liquidity is associated with a rollover risk. This rollover risk either keeps intermediaries from providing liquidity optimally, or it makes the economy inherently fragile. In contrast to privately produced claims, government bonds are not associated with coordination problems unless there is the prospect that the government may default. Therefore, efficiency and stability can be enhanced if liquidity management relies on public outside liquidity.

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Section: Introductionmentioning

confidence: 93%

Outside Liquidity, Rollover Risk, and Government Bonds

Luck

Schempp

2014

SSRN Journal

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“…With this interpretation of bank failures and runs, this model seems better able to confront U.S. and Canadian experience than the bank runs model of Diamond and Dybvig (1983) or the related model of Postlewaite and Vives (1987). These other models rely on inherent features of the deposit contract to explain runs, which leaves the very different behavior of U.S. and Canadian banking systems unexplained.…”

Section: The Model Canadian Economymentioning

confidence: 98%

“…Banks provide a form of insurance through the withdrawal provision in deposit contracts, but this leaves banks open to runs, during which the expectation of the failure of an otherwise safe bank is self-fulfilling. (This branch of the literature includes Postlewaite and Vives 1987;Wallace 1988; Another branch of the financial intermediation literature, which includes work by Diamond (1984), Boyd and Prescott (1986), and William-304 " WILLIAMSON son (1986), is concerned with financial intermediation in general (rather than banking in particular) and with the features of economic environments (moral hazard, adverse selection, and monitoring and evaluation costs) that can lead to intermediary structures. Models of this type have been integrated into macroeconomic frameworks by Williamson (1987b), Greenwood and Williamson (1988), and Bernanke and Gertler (1989) to study the implications of financial intermediation for aggregate fluctuations.…”

Section: Introductionmentioning

confidence: 99%

Restrictions on Financial Intermediaries and Implications for Aggregate Fluctuations: Canada and the United States 1870-1913

Williamson¹

1989

NBER Macroeconomics Annual

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“…Several authors have treated information asymmetries as secondary, focusing instead on coordination problems among depositors (Diamond & Dybvig, 1983;Postlewaite & Vives, 1987;Goldstein & Pauzner, 2005;Rochet & Vives, 2004).…”

Section: Systemic Trust In Banks a Bank Runsmentioning

confidence: 99%

Trust in Banks: A Tentative Conceptual Framework

Butzbach

2016

Schmollers Jahrbuch

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Telephone number: (+39) 0823275001 2 ABSTRACT:Since the 2007-08 crisis, banks in many countries have been facing what seems to be a serious "trust crisis". This sharp decline in trust in banks and banking, the likely outcome of the near-collapse of banking systems during the crisis, is partly captured by a growing empirical literature. However, this literature presents serious shortcomings, which reflect a more general lack of theorization of trust in banks. This lack of theorization certainly has much to do with the distance between the economic literature on banks and banking and the sociological and economic literature on trust. This paper aims at bridging this gap by proposing a new conceptual framework. In particular, the paper identifies three related dimensions of trust that seem to have relevance for the banking industry: "relational", "systemic" and "vertical" trust. While mainstream financial intermediation theory and agency theory provide a good understanding of relational trust, they are less well equipped to deal with the other dimensions of trust. The paper, therefore, builds on heterodox theories of money and debt to build a more comprehensive understanding of trust in banks. This tentative conceptual framework, in turn, has implications for current theories of banking and of trust.

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Bank Runs as an Equilibrium Phenomenon

Cited by 264 publications

References 3 publications

Outside Liquidity, Rollover Risk, and Government Bonds

Outside Liquidity, Rollover Risk, and Government Bonds

Restrictions on Financial Intermediaries and Implications for Aggregate Fluctuations: Canada and the United States 1870-1913

Trust in Banks: A Tentative Conceptual Framework

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