This paper analyzes market discipline in a many-bank economy where contagion and bank runs interact. We present a model with differently-informed depositors, where those depositors that are more informed have incentives to monitor banks’ investments. It is shown that when banks are...

We analyze an overlapping generations economy where agents interact to share liquidity risk. We show that a pure exchange economy has excessive trade in equilibrium because agents interact to rebalance their portfolios. Intergenerational financial intermediaries reduce the number of interactions...

This paper analyzes the effectiveness of different government policies to prevent the emergence of banking crises. In particular, we study the impact on welfare of using taxpayers money to recapitalize banks, government injection of money into the banking system through credit lines, the...