Anticipated Banking Panics

Banking Panics and Protracted Recessions

This paper develops a dynamic theory of money and banking that explains why banks need to hold an illiquid portfolio to provide socially optimal transaction and liquidity services, opening the door to the possibility of equilibrium banking panics. Following a widespread liquidation of banking assets in the event of a panic, the banking portfolio consistent with the optimal provision of transact...

Banking Panics and Policy Responses

We study how banking panics unfold in a version of the Diamond and Dybvig (1983) model with limited commitment. As is well known, the banking authority could eliminate the possibility of a run on the banking system by committing to suspend payments to depositors if a run were to start. Once a run is under way, however, the banking authority will choose to reschedule, rather than suspend, paymen...

Banking Without Deposit Insurance or Bank Panics: Lessons From a Model of the U.S. National Banking System

Moral Panics and Video Games

Bank panics and scale economies ∗

A bank panic is an expectation-driven redemption event that results in a self-fulfilling prophecy of losses on demand deposits. From the standpoint of theory in the tradition of Diamond and Dybvig (1983) and Green and Lin (2003), it is surprisingly diffi cult to generate bank panic equilibria if one allows for a plausible degree of contractual flexibility. A common assumption employed in the st...