Working Paper Series Bank Runs and Investment Decisions Revisited Wp 04-03 Huberto M. Ennis Federal Reserve Bank of Richmond Bank Runs and Investment Decisions Revisited Federal Reserve Bank of Richmond Working
نویسندگان
چکیده
We examine how the possibility of a bank run affects the deposit contract offered and the investment decisions made by a competitive bank. Cooper and Ross (1998) have shown that when the probability of a run is small, the bank will offer a contract that admits a bank-run equilibrium. We show that, in this case, the bank will chose to hold an amount of liquid reserves exactly equal to what withdrawal demand will be if a run does not occur. In other words, precautionary or “excess” liquidity will not be held. This result allows us to determine how the possibility of a bank run affects the level of illiquid investment chosen by a bank. We show that when the cost of liquidating investment early is high, the level of investment is decreasing in the probability of a run. However, when liquidation costs are moderate, the level of investment is actually increasing in the probability of a run. JEL Classification Numbers: D84, E44, G21
منابع مشابه
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