Rehypothecation refers to the practice of reusing (selling or pledging as collateral) an asset that has already been pledged as collateral for a cash loan. In high inflation economies, rehypothecation improves economic welfare, but there is generally too much of it. We find that regulatory...

Peck and Shell (2003) show that equilibrium bank runs are possible in the Diamond and Dybvig (1983)environment. We show that their result is an artifact of their restriction to direct mechanisms. That is, their bank contract is not an optimal one. We show that an indirect mechanism eliminates...