Run theorems for low returns and large banks

Bertolai, Jefferson Donizeti Pereira; Cavalcanti, Ricardo de Oliveira; Monteiro, Paulo Klinger

doi:10.1007/s00199-014-0824-0

Cited by 9 publications

(10 citation statements)

References 9 publications

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“…Given that property (7) is satisfied, a backward-induction argument delivers the final result. Note that, contrary to the existence result in Bertolai et al (2014), details of how (x, y) behaves in response to withdrawals are not important in this logic. What is key is that forward-looking inequalities (7) are satisfied by the optimal contract.…”

Section: A Single Bank Without Disclosure and With Runsmentioning

confidence: 81%

“…Relative to the condition for a single bank in Theorem 1, the role of δ is now smaller. In the proof of this theorem in Bertolai et al (2014), the effect of R on the sequence of impatient consumption depends smoothly on N , as the level of liquidity provision gradually changes with the size of the queue. This parsimonious effect of R, as N increases, is in fact reflected by the decaying terms of the harmonic series appearing in the condition of Theorem 1.…”

Section: Runs Without Disclosurementioning

confidence: 97%

“…Here, under the extreme (maximum-lag) sequential service, although such direct differentiation is no longer possible, derivatives of (x 1 , x 2 , x, y) still form a tractable linear system because, in the limit, as R → 1, depositors should consume the per-capita endowment e = Y N . This is important because, when R is raised above 1, the situation changes from one in which there is never an incentive to misrepresent types to another where risk sharing may introduce coordination problems and thus multiple equilibria [see Bertolai et al (2014) for another application of this idea]. As we shall see, bank-run conditions are characterized by linear transformations of such derivatives.…”

Section: Pairwise Bankingmentioning

confidence: 99%

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Bank runs with many small banks and mutual guarantees at the terminal stage

Bertolai

Cavalcanti²,

Monteiro³

2018

Econ Theory

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In this paper, we develop a model in the spirit of Diamond and Dybvig (J Polit Econ 91(3): [401][402][403][404][405][406][407][408][409][410][411][412][413][414][415][416][417][418][419] 1983), with bank-specific sequential-service constraints and commitment to a redistribution policy at the terminal date. In the good equilibrium, some insurance is provided against the risk of being affiliated with a bank with too many impatient depositors. We also find, however, that an unpleasant arithmetic takes place in a bad equilibrium, with patient depositors realizing they can be heavily taxed since runs are reducing savings in other banks, which in turn changes the ability of their own bank to induce truth-telling. We prove that even the disclosure device proposed by Green and Lin (J Econ Theory 109(1):1-23, 2003) may not remove bank-run equilibria. Keywords Sequential service • Deposit insurance • Green-Lin modelThis paper was presented at the SAET 2016 meeting and the conference Liquidity, Market Frictions and the Economy, at the Bank of France, in Paris (June 2016), under the title 'Unifying bank-run theories and (the trap of) financial integration'. We thank seminar participants for helpful comments, specially Régis Breton and Neil Wallace (who suggested the new title). The usual disclaim applies. Cavalcanti and Monteiro acknowledge financial support from CNPq-Brazil.

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Section: A Single Bank Without Disclosure and With Runsmentioning

confidence: 81%

Section: Runs Without Disclosurementioning

confidence: 97%

Section: Pairwise Bankingmentioning

confidence: 99%

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Bank runs with many small banks and mutual guarantees at the terminal stage

Bertolai

Cavalcanti²,

Monteiro³

2018

Econ Theory

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“…The key assumption is that depositors have no information about their position in the withdrawal order. Peck and Shell (2003) also use a different specification of preferences from Green and Lin (2003), but Ennis and Keister (2009) show that this difference is not essential for their results; see also Sultanum (2014) and Bertolai et al (2014).…”

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confidence: 99%

Optimal banking contracts and financial fragility

Ennis

Keister

2015

Econ Theory

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We study a finite-depositor version of the Diamond-Dybvig model of financial intermediation in which the bank and all depositors observe withdrawals as they occur. We derive the constrained efficient allocation of resources in closed form and show that this allocation provides liquidity insurance to depositors. The contractual arrangement that decentralizes this allocation resembles a standard bank deposit in that it has a demandable debt-like structure. When withdrawals are unusually high, however, depositors who withdraw relatively late experience significant losses. This contractual arrangement can be fragile, admitting another equilibrium in which depositors run on the bank by withdrawing funds regardless of their liquidity needs. JEL Classification Numbers: G21,G01, D82

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“…Logo, o indivíduo paciente na primeira posição fica indiferente entre revelar ou não a verdade durante uma corrida quando → 1, pois (1) = 0. Se utilizando da abordagem proposta por Bertolai et al (2014), Bertolai et al (2016) estudam a existência de corrida por meio da derivada ′ ( ) na vizinhança de = 1, ao destacar que se ′ (1) ≡ lim →1 ′ ( ) > 0, então existe corrida bancária para suficientemente próximo de (e maior do que) 1. No caso = 2 ela é dada por…”

Section: Instabilidade Financeira Com Serviço Sequencialunclassified

Instabilidade financeira com (e sem) serviço sequencial

Melo¹

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A teoria econômica mostra que instabilidade financeira é um problema que atinge as economias nos períodos de recessão causando desemprego, queda nos níveis de consumo e poupança, surgimento de corridas bancárias e, consequentemente, a redução do bemestar da sociedade. A literatura que estuda instabilidade financeira divide-se em duas vertentes as quais importantes referências nas áreas de estudo sem serviço sequencial e com serviço sequencial são Allen e Gale (2000) e Bertolai, Cavalcanti, e Monteiro (2016), respectivamente. A contribuição deste trabalho consiste em apresentar os modelos e principais resultados de Allen e Gale (2000) e Bertolai et al. (2016) como casos limites de um mesmo problema de escolha do sistema bancário ótimo para estabelecer, em seguida, resultados complementares à essas referências. A primeira contribuição, no ambiente em que não existe serviço sequencial, é propor uma nova forma de divisão do choque inesperado de liquidez no modelo de Allen e Gale (2000) de modo que esse mecanismo de cooperação no interbancário consiga evitar contágio e o colapso generalizado entre os bancos. Já no ambiente com serviço sequencial, uma segunda contribuição é estender Bertolai et al. (2016) ao estabelecer novos equilíbrios de corrida bancária, em que os três últimos depositantes de cada um dos bancos da economia não participam da corrida bancária.

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Run theorems for low returns and large banks

Cited by 9 publications

References 9 publications

Bank runs with many small banks and mutual guarantees at the terminal stage

Bank runs with many small banks and mutual guarantees at the terminal stage

Optimal banking contracts and financial fragility

Instabilidade financeira com (e sem) serviço sequencial

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