Could making banks hold only liquid assets induce bank runs?

Restrictions placed on bank portfolios are analyzed in a banking model designed to capture the role of checking accounts in facilitating transactions. Forcing banks to hold only liquid assets creates the incentive for liquidity-based runs. Even when a run does not occur, welfare is reduced as a result of overinvestment in the liquid asset.

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Year of publication:	2010
Authors:	Peck, James ; Shell, Karl
Published in:	Journal of Monetary Economics. - Elsevier, ISSN 0304-3932. - Vol. 57.2010, 4, p. 420-427
Publisher:	Elsevier
Keywords:	Bank runs Bank stability Deposit contracts Glass-Steagall banking Mechanism design Portfolio restrictions Sunspot equilibrium

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008487958