Bank Runs, Deposit Insurance, and Liquidity
This paper shows that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits. Investors face privately observed risks which lead to a demand for liquidity. Traditional demand deposit contracts wh...
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| Veröffentlicht in: | The Journal of political economy 1983-06, Vol.91 (3), p.401-419 |
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| container_end_page | 419 |
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| container_title | The Journal of political economy |
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| creator | Diamond, Douglas W. Dybvig, Philip H. |
| description | This paper shows that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits. Investors face privately observed risks which lead to a demand for liquidity. Traditional demand deposit contracts which provide liquidity have multiple equilibria, one of which is a bank run. Bank runs in the model cause real economic damage, rather than simply reflecting other problems. Contracts which can prevent runs are studied, and the analysis shows that there are circumstances when government provision of deposit insurance can produce superior contracts. |
| doi_str_mv | 10.1086/261155 |
| format | Article |
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Investors face privately observed risks which lead to a demand for liquidity. Traditional demand deposit contracts which provide liquidity have multiple equilibria, one of which is a bank run. Bank runs in the model cause real economic damage, rather than simply reflecting other problems. 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| identifier | ISSN: 0022-3808 |
| ispartof | The Journal of political economy, 1983-06, Vol.91 (3), p.401-419 |
| issn | 0022-3808 1537-534X |
| language | eng |
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| source | Worldwide Political Science Abstracts; Business Source Complete; Periodicals Index Online; Jstor Complete Legacy |
| subjects | Asset-liability Management Bank assets Bank deposits Bank failures Bank liquidity Bank loans Banking panics BANKING, BANKS Banks Checking accounts CONTRACTS, CONTRACT ADMINISTRATORS Demand deposit accounts Deposit insurance Economic models ECONOMIC THEORY ECONOMICS Expectations FINANCIAL SERVICE, BANKS, INSURANCE SYSTEMS, SECURITIES, EXCHANGES INSURANCE MARKETING SYSTEM Nash equilibrium Political economy PROBLEM SOLVING RATIONING RISK Spreading risk TRADITION |
| title | Bank Runs, Deposit Insurance, and Liquidity |
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