Governments typically respond to a run on the banking system by temporarily freezing deposits and by rescheduling payments to depositors. Depositors may even be required to demonstrate an urgent need for funds before being allowed to withdraw. We study ex post efficient policy responses to a bank run and the ex ante incentives these responses create. Given that a run is underway, the efficient ...

This paper attempts to investigate the existence of Market Discipline in the Indian commercial banks over the period 2001-2008 i.e., 7 years. This period is characterized by second round of banking sector reform as suggested by Narsimham Committee for banking restructuring and market discipline. A total of 63 scheduled commercial banks were taken as the sample size which included 27 public sect...

This paper explores sources of deposit dollarization unrelated to standard moral hazard arguments. We develop a model in which banks choose the optimal currency composition of their liabilities. We argue that the equal treatment of peso and dollar claims in the event of bank default can induce banks to attract dollar deposits above the socially desirable level. The distortion arises because dol...

This paper investigates the factors affecting bank operational risk and bank equity risk for European banks during 1996 to 2005. Pooled-OLS and panel data analysis is applied to 84 financial institutions across 15 European countries using credit risk, interest rate risk, total equity, systematic risk and idiosyncratic risk. Off-balance sheet activities are positively correlated with all the ris...

The credit hypothesis maintains that nonmonetary factors worsen declines in output during severe economic contractions, which has been a prominent rationale for stringent bank regulation. We apply recent advances in time series analysis to re-examine the role of U.S. bank failures in the Great Depression. In brief, month-by-month decompositions of output, prices, money supply, the liabilities o...

Traditional monetary theory has largely ignored the role of bank equity. Bank-centred accounts of how monetary policy affects the real economy usually focus on the role of reserves and reserve requirements in determining the volume of demand deposits and, in the case of the bank lending channel, bank loans. As Benjamin Friedman (1991) observed, “Traditionally, most economists have regarded the ...

Traditional monetary theory has largely ignored the role of bank equity. Bank-centred accounts of how monetary policy affects the real economy usually focus on the role of reserves and reserve requirements in determining the volume of demand deposits and, in the case of the bank lending channel, bank loans. As Benjamin Friedman (1991) observed, “Traditionally, most economists have regarded the ...

implementation of monetary policies and adjustments in liquidity are the most important tools of the central bank of iran used in structural reforms in the banking industry. this policy influences the efficiency of the monetary policy through its impact on bank credit channels. in this study we used dynamic stochastic general equilibrium models as one of the most innovative approaches to moneta...

During the global financial crisis, banks were under severe pressure to maintain adequate liquidity. This resulted in demands for cash from various sources, including counterparties, short-term creditors, and, especially, existing borrowers. Also, banks were forced to maintain more liquid assets in the event of unexpected future losses that may occur from securities write-downs. This can cause ...

B usiness failure typically occurs when a financially weak firm can no longer pay its creditors. Failure generally involves a series of steps. First, the firm suffers losses. Second, when the firm’s creditors learn of the losses, they increase their estimate of the firm’s probability of default. To compensate themselves for this increased risk, creditors demand higher interest rates or require ...